The dividend allowance is the amount of dividend income you can receive each tax year before UK dividend tax may apply. The allowance is £500 for 2026/27.
Dividend allowance in plain English
The dividend allowance lets you receive a small amount of dividend income before dividend tax is charged. For 2026/27, the allowance is £500.
Dividends are payments made by some companies to shareholders. You may receive dividends from individual shares, investment trusts, funds, company ownership or some business structures.
Dividend tax is charged only on dividend income above the allowance, after considering your wider tax position. Your tax rate depends on your Income Tax band once dividend income is added to your other income.
Dividends inside a Stocks and Shares ISA are normally sheltered from dividend tax. That is one reason investors often use their ISA allowance before building a large taxable investment account.
The dividend allowance is separate from the ISA allowance and separate from Capital Gains Tax. Dividend tax applies to income from shares. Capital Gains Tax can apply when you sell an investment for a profit outside a tax wrapper.
Calculate dividend income and yield
Use the dividend yield calculator to estimate dividend income, yield and how much dividend income may sit above the allowance.
Dividend Yield Calculator
Estimate dividend income, yield and possible taxable dividends.
Dividend allowance and tax rates
Dividend tax rates for 2026/27 depend on your Income Tax band. You may pay more than one dividend tax rate if dividend income crosses a tax band.
| Item | 2026/27 figure | What it means |
|---|---|---|
| Dividend allowance | £500 | Dividend income above this may be taxable. |
| Basic-rate dividend tax | 10.75% | Rate on taxable dividends in the basic-rate band. |
| Higher-rate dividend tax | 35.75% | Rate on taxable dividends in the higher-rate band. |
| Additional-rate dividend tax | 39.35% | Rate on taxable dividends in the additional-rate band. |
Example of how dividend allowance works
Suppose you receive £1,200 of dividends from shares held outside an ISA. For 2026/27, the first £500 may be covered by the dividend allowance.
That leaves £700 of dividends potentially taxable. The tax rate on that £700 depends on your Income Tax band after your dividend income is added to your other income.
Simplified example: your final tax position can depend on your total income, Personal Allowance, tax band, other dividends and whether investments are inside an ISA or pension.
Dividend allowance and ISAs
Dividends from investments held inside an ISA are normally sheltered from UK dividend tax. This means they do not usually use your dividend allowance.
If you hold dividend-paying shares or funds outside an ISA, dividend income may need to be tracked for tax. If the same investments are inside a Stocks and Shares ISA, the tax reporting is usually simpler.
ISA Calculator
Model ISA contributions, growth and remaining annual allowance.
Dividend allowance vs Capital Gains Tax allowance
Dividend allowance and Capital Gains Tax allowance cover different things. Dividend allowance relates to income paid by investments. Capital Gains Tax allowance relates to profit when assets are sold or disposed of.
| Allowance | Applies to | Example |
|---|---|---|
| Dividend allowance | Dividend income outside tax wrappers. | A fund pays £800 of dividends in a taxable account. |
| Capital Gains Tax annual exempt amount | Taxable gains when assets are disposed of. | You sell shares outside an ISA for more than you paid. |
Common dividend allowance mistakes
- Thinking all dividends are tax-free: only dividends within allowances or tax wrappers may be free from dividend tax.
- Ignoring dividends from funds: accumulation and income funds can still have dividend tax reporting outside an ISA.
- Confusing dividend allowance with ISA allowance: an ISA is a wrapper; the dividend allowance applies outside wrappers.
- Forgetting dividends can affect tax bands: dividend income is added to other income when calculating tax.
- Not keeping records: taxable accounts may require dividend statements for Self Assessment or HMRC checks.
- Focusing only on yield: a high dividend yield can come with investment risk and possible capital loss.