UK Dividend Allowance History: £5,000 (2016) to £500 (2026/27)

The dividend allowance was £5,000 in 2016/17, £2,000 from 2018/19, £1,000 in 2023/24 and £500 from 2024/25, still £500 for 2026/27. Year-by-year table of allowances and rates, and what each cut cost investors.

Last updated: October 2026 · 6 min read · Reviewed by the UKDividendTaxCalculator team. Reviewed against official UK guidance. Methodology

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Introduction of the Dividend Allowance in 2016

The dividend allowance was introduced by the then Chancellor George Osborne in the April 2016 tax reform. Before this, dividends came with a notional 10% tax credit, meaning basic-rate taxpayers paid no additional tax and higher-rate taxpayers paid less than the headline rate. The 2016 reform scrapped the tax credit and replaced it with a new £5,000 tax-free dividend allowance. Basic-rate dividend tax was set at 7.5%, higher rate at 32.5% and additional rate at 38.1%.

For many small investors and directors with modest dividend income, the £5,000 allowance meant no dividend tax was payable at all. A director taking £5,000 in dividends from their company paid zero dividend tax, making the allowance highly valuable for the self-employed company owner community.

Dividend allowance and dividend tax rates by year, 2016/17 to 2026/27

Each tax year runs from 6 April to 5 April. The allowance is taxed at 0% and the rates apply to dividends above it, in whichever Income Tax band they fall: ordinary (basic), upper (higher) and additional. The last column says what changed that year and which Act changed it.

Figures from the Acts on legislation.gov.uk; 2023/24 to 2026/27 also match GOV.UK's rates table. Budget 2026 keeps the £500 allowance and the 2026/27 rates for 2027/28.

Before April 2016: the 10% dividend tax credit

Until 5 April 2016 there was no dividend allowance. Instead each dividend came with a 10% tax credit. The dividend ordinary rate was 10%, so a basic-rate taxpayer's credit covered the tax in full and there was nothing more to pay. The upper rate was 32.5% and the additional rate 37.5%, with the 10% credit set against both.

The Finance Act 2016 abolished the tax credit and introduced the £5,000 allowance (the dividend nil rate) from 6 April 2016, while cutting the ordinary rate to 7.5% and raising the additional rate to 38.1%. That is why a basic-rate shareholder with more than £5,000 of dividends started paying dividend tax for the first time in 2016/17.

Cut to £2,000 in April 2018

The first reduction came in April 2018 when the allowance was cut from £5,000 to £2,000. This change affected a large number of investors and small business owners who had previously relied on the full £5,000 to stay below the tax threshold. For a higher-rate taxpayer, the cut from £5,000 to £2,000 added approximately £975 to their annual dividend tax bill (32.5% on the £3,000 reduction). For additional-rate taxpayers, the hit was around £1,143 (38.1% on £3,000).

The government framed the cut as addressing a perceived unfairness between employed and self-employed individuals and between salary and dividend income. The argument was that the £5,000 allowance had been too generous relative to the employer NI advantage directors already enjoyed. The reduction to £2,000 was a first step in narrowing those structural advantages.

Cut to £1,000 in April 2023

The April 2023 reduction to £1,000 was announced by Chancellor Jeremy Hunt as part of the Autumn Statement 2022. A year earlier, in April 2022, dividend tax rates had risen by 1.25 percentage points alongside the Health and Social Care Levy, to 8.75% basic, 33.75% higher and 39.35% additional. The levy was reversed for National Insurance in November 2022, but the higher dividend rates were kept. From 6 April 2026 the basic and higher rates rose by a further 2 points to 10.75% and 35.75%; the additional rate stayed at 39.35%.

The combined effect of higher rates and a lower allowance was significant. A higher-rate taxpayer who had previously paid no dividend tax on £2,000 of dividends now paid 33.75% on £1,000 above the new £1,000 allowance: an annual cost of £337.50. Meanwhile, the 1.25-point rate increase added to bills across all dividend income above the allowance.

Cut to £500 in April 2024

The most recent reduction, to £500, took effect from 6 April 2024. This was also announced by Jeremy Hunt and completed a sequence of three cuts in six years (2018, 2023 and 2024). The £500 allowance represents a 90% reduction from the original £5,000 in 2016. For a higher-rate taxpayer with £5,000 of dividends, the annual dividend tax bill has risen from approximately £0 in 2016 to approximately £1,609 in 2026/27 (35.75% on £4,500 above the allowance).

The current £500 allowance is expected to remain at this level for the foreseeable future, though it can of course be changed by future governments. There is no indexing to inflation, so in real terms the allowance will erode further over time unless explicitly increased. Directors and investors should plan on the basis of the current £500 figure.

What the Cuts Mean for Planning Today

With only £500 of dividend income tax-free, the case for using ISAs and pensions to shelter dividend income has never been stronger. The ISA allowance of £20,000 per year, if fully used in a Stocks and Shares ISA, protects all dividends from the small-company share portfolio of most individual investors. Directors who relied on the generous early allowances need to reassess their salary/dividend mix and consider whether other structures (such as pension contributions) can restore some of the lost efficiency.

The trajectory of the allowance also serves as a reminder that tax reliefs can be reduced or removed. Long-term planning should not rely heavily on a single allowance remaining at its current level, diversifying across ISAs, pensions and other wrappers gives resilience against future changes.