What Is the Dividend Allowance? (UK 2025/26)

The dividend allowance is the amount of dividend income you can receive each year without paying any dividend tax. For 2025/26, this is £500. Any dividends above this amount are taxed at special dividend rates that are lower than the equivalent income tax rates.

Dividend Tax Rates 2025/26

• Basic rate: 8.75% on dividends within the basic rate band
• Higher rate: 33.75% on dividends within the higher rate band
• Additional rate: 39.35% on dividends above the additional rate threshold

The allowance has been reduced significantly in recent years — from £2,000 in 2022/23 to £1,000 in 2023/24, and then to £500 from 2024/25 onwards.

Important: It Still Counts as Income

The dividend allowance does not reduce your total income for tax purposes. Dividends within the allowance still count towards determining which tax band you fall into. This means £500 of tax-free dividends could push other income into a higher band.

Dividends Inside an ISA

Dividends received within a Stocks and Shares ISA are completely tax-free and do not count against the dividend allowance. For investors with significant dividend income, maximising ISA contributions is one of the most effective strategies.