The £500 allowance
You don’t pay tax on dividend income that falls within your Personal Allowance (£12,570). On top of that, everyone gets a dividend allowance of £500 a year — the first £500 of dividends above your Personal Allowance is tax-free. You only pay dividend tax on income above the allowance.
The allowance has shrunkIt used to be £2,000, then £1,000, and is now just £500. So far more people with modest share portfolios or small-company dividends now pay some dividend tax — even if they didn’t a couple of years ago.
The 2026/27 rates
Above the £500 allowance, the rate depends on your Income Tax band. For the 2026/27 tax year (6 April 2026 to 5 April 2027):
| Your Income Tax band | Dividend rate (over the allowance) |
|---|
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Rates went up on 6 April 2026The basic and higher dividend rates rose from 8.75% → 10.75% and 33.75% → 35.75% for 2026/27; the additional rate stayed at 39.35%. If you’re reading older figures elsewhere, they may be out of date.
You work out your band by adding your dividend income to your other income — so a dividend can fall partly in one band and partly in the next, and you may pay at more than one rate.
A worked example
Say you earn £29,570 in wages and get £3,000 in dividends in 2026/27 — total income £32,570. Take off your £12,570 Personal Allowance, leaving £20,000 taxable, all in the basic-rate band. You’d pay:
| On | Tax |
|---|
| £17,000 of wages | 20% Income Tax |
| £500 of dividends | £0 — the dividend allowance |
| £2,500 of dividends | 10.75% = about £269 |
ISA dividends are tax-freeDividends from shares held in a Stocks & Shares ISA are completely free of dividend tax and don’t use your £500 allowance. If your dividends are creeping over £500, holding the shares in an ISA (within the rules) can cut or remove the tax.
How to report it to HMRC
- Within your allowances? Nothing to report.
- Already file a tax return? Include the dividends on your Self Assessment.
- Don’t file, dividends up to £10,000? You can ask HMRC to change your tax code to collect the tax, or contact them.
- Dividends over £10,000? You’ll usually need to register for Self Assessment.
Keep your dividend vouchers (the statements showing what you were paid) as your records.
Do this now
Add up your dividends for the year. Over £500 above your Personal Allowance? You’ll owe some tax — work out your band and check whether you need to file a return or ask HMRC to change your tax code.
Run your own limited company and pay yourself in dividends? Combine this with our start a business guide and check your National Insurance position too.
Related guides — money & tax
Source verification
Primary source: GOV.UK / HMRC — Tax on dividends (
gov.uk/tax-on-dividends, GOV.UK-updated 23 April 2026) and the “Changes to tax rates for property, savings & dividend income” policy paper. Last verified 2 July 2026 — the £500 dividend allowance, the 2026/27 rates over the allowance (basic 10.75%, higher 35.75%, additional 39.35%), the rise from 8.75%/33.75% on 6 April 2026, the tax-free treatment of ISA dividends, the reproduced GOV.UK worked example (£3,000 dividends + £29,570 wages → 10.75% on £2,500 of dividends), and the reporting routes (Self Assessment; tax-code change for dividends up to £10,000) were web-checked directly against the live GOV.UK page. Confidence: High — published HMRC rates for 2026/27; note rates and the allowance are set by the government and can change at a Budget. Scope: UK-wide (dividend tax rates are not devolved, unlike the Scottish/Welsh Income Tax bands on earnings). Not financial advice — use HMRC’s dividend/interest estimator or an accountant for your situation.
Dividend tax — common questions
How much tax do I pay on dividends?
Nothing on the first £500 (the dividend allowance) plus anything within your Personal Allowance. Above that, 2026/27 rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional), depending on your total income. ISA dividends are tax-free.
What is the dividend allowance?
£500 of dividend income tax-free each year, on top of your Personal Allowance. It’s been cut from £2,000 to £1,000 to £500, so more people now pay some dividend tax.
What are the 2026/27 rates?
10.75% basic, 35.75% higher, 39.35% additional — the basic and higher rates rose from 8.75% and 33.75% on 6 April 2026.
Are ISA dividends taxed?
No — dividends from shares in a Stocks & Shares ISA are tax-free and don’t use your £500 allowance. Holding dividend shares in an ISA can cut or remove the tax.
How do I report dividends?
Nothing if within your allowances. Above them: use Self Assessment, or (for dividends up to £10,000) ask HMRC to change your tax code. Over £10,000 usually means registering for Self Assessment.
Sources: The dividend allowance, the 2026/27 rates and reporting · GOV.UK — Tax on dividends. SortedUK is not a regulated adviser and this is general information. Last reviewed: 2 July 2026.