Guide · tax year 2026/27
How much dividend is tax free?
The short answer: £500, guaranteed, for everyone. The longer answer involves your personal allowance, your ISA, and a reporting rule that catches people out.
The £500 dividend allowance
Every UK taxpayer gets a dividend allowance of £500 in 2026/27. The first £500 of dividend income is taxed at 0% whatever else you earn. A basic rate saver with a few income shares and an additional rate company director both get the same £500 at 0%.
One catch worth knowing: the allowance is a 0% rate, not an exemption. The £500 still occupies space in your tax bands. If your income sits near the £50,270 higher rate threshold, that £500 can push other dividends up into the 35.75% band even though the £500 itself carries no tax.
When the personal allowance covers dividends too
The £12,570 personal allowance goes against your salary and other income first. Whatever is left over covers dividends before the £500 allowance even comes into play. So if your other income is low, far more than £500 of dividends can be tax free.
Take someone with a £10,000 part-time salary and £3,070 of dividends. The salary uses £10,000 of the personal allowance, leaving £2,570 spare. That covers £2,570 of the dividends, and the £500 dividend allowance mops up the rest. Total dividend tax: nothing. Someone with no other income at all could take £13,070 of dividends in 2026/27 before paying a penny.
This is why the classic director setup of a small salary plus dividends works as it does. The calculator shows exactly how much of your dividend income each allowance absorbs.
How the allowance has shrunk
The dividend allowance is a tenth of what it was when it arrived in 2016:
- 2016/17 to 2017/18£5,000
- 2018/19 to 2022/23£2,000
- 2023/24£1,000
- 2024/25 onwards£500
At £5,000, most ordinary shareholders never touched dividend tax. At £500, a portfolio of around £13,000 in FTSE income shares yielding 4% already uses the whole allowance. Almost anyone holding dividend-paying shares outside an ISA now owes something.
The ISA exemption
Dividends earned inside a stocks and shares ISA are free of dividend tax entirely. No rate applies, no allowance is used, nothing is reported. The same goes for dividends earned inside a pension. With the allowance down at £500, moving income-paying shares into an ISA (up to the £20,000 annual subscription limit) is often the single easiest dividend tax saving available. Shares already held outside can be sold and rebought inside, though capital gains tax on the sale needs checking first.
When you must tell HMRC
Up to £500 of dividends: no action needed. Over £500 you must tell HMRC, even when the tax due is modest. Between £500 and £10,000 you can either report through Self Assessment or simply contact HMRC and have the tax collected through an adjusted tax code, which suits employees who do not otherwise file a return.
Over £10,000 of dividends, Self Assessment is required. The registration deadline is 5 October after the end of the tax year, and online returns are due by 31 January. Directors paying themselves in dividends are almost always in this group, so the return is a fixture of the calendar rather than a surprise.
Common questions
How much dividend income is tax free in 2026/27?
The first £500 is always tax free thanks to the dividend allowance. If your other income is below the £12,570 personal allowance, the unused part of that covers dividends as well, so someone with no salary could take £13,070 of dividends before any tax. Dividends inside an ISA or pension are tax free without limit.
Does the £500 allowance mean I can ignore dividends under £500?
For tax, yes: they carry no tax and need no reporting. Over £500 you must tell HMRC even if the tax due is small, either through Self Assessment or by asking HMRC to adjust your tax code.
Do ISA dividends count towards the £500 allowance?
No. Dividends earned inside a stocks and shares ISA sit completely outside the system. They carry no tax, use none of your allowance and never appear on a tax return, however large they get.
Will the dividend allowance go up again?
Nothing announced suggests so. It was cut from £5,000 to £2,000 in 2018, to £1,000 in 2023 and to £500 in 2024, and the Finance Act 2026 left it at £500 while raising two of the rates. Planning on it staying small is the safe assumption.
Once you are past the allowance, the rate you pay depends on your band. See the 2026/27 dividend tax rates with worked examples, or get your exact figure from the dividend tax calculator.