Dividend Allowance 2026/27: £500 Explained with Examples
Every UK taxpayer gets a £500 dividend allowance for 2026/271 — the slice of dividend income you can take each year at 0%. The bit hardly anyone explains: it isn't a deduction, it's a nil-rate band that uses up part of whichever tax band it sits in. That's small print for most people, but it changes the maths once dividends straddle two bands. Here's how it works, with examples.
The dividend allowance for 2026/27 is £5001. Every UK taxpayer gets it, whatever their tax band, and the first £500 of dividend income each year is taxed at 0%. Dividends above £500 are taxed at 10.75%, 35.75% or 39.35%1 depending on your income band. It is a per-person allowance, so a couple can shelter £1,000 of dividends between them.
- The 2026/27 dividend allowance is £5001 per person — down from £1,000 in 2023/24 and £2,000 before that2.
- It's a 0% nil-rate band, not a deduction: it still uses up part of your basic or higher-rate band3.
- Everyone gets the same £500, but the cash saving rises with your rate — £53.75 basic, £178.75 higher, £196.75 additional.
- ISA and pension dividends don't touch the allowance at all — it stays free for taxable holdings.
- Unused allowance can't be carried forward; it resets each 6 April.
The dividend allowance for 2026/27 is £500. Every UK taxpayer gets it, whatever their tax band, and the first £500 of dividend income each year is taxed at 0%. Dividends above £500 are taxed at 10.75%, 35.75% or 39.35% depending on your income band. It is a per-person allowance, so a couple can shelter £1,000 of dividends between them.
What the £500 dividend allowance means
The dividend allowance is not a deduction from income. It is a nil-rate band that sits within your income bands. The first £500 of dividend income each tax year is charged at 0% rather than at 10.75%, 35.75% or 39.35%.
The £500 uses up some of your basic-rate or higher-rate band rather than reducing your income. For most people this technical point doesn't matter — £500 of dividends simply go untaxed. But for calculations involving several income sources, where the allowance sits within the bands does make a difference.
Who gets the dividend allowance?
Every UK taxpayer gets the £500 allowance regardless of tax band. Basic-rate, higher-rate and additional-rate taxpayers all get the same £500. The cash saving differs: a basic-rate taxpayer saves £53.75 (10.75% × £500), a higher-rate taxpayer saves £178.75 (35.75% × £500), and an additional-rate taxpayer saves £196.75 (39.35% × £500).
The allowance is per individual, not per couple. A married couple each has their own £500, so between them they can receive £1,000 of dividends free from dividend tax.
Worked examples
A higher-rate taxpayer on a £60,000 salary receives £5,000 of dividends. The salary already passes £50,270, so every dividend pound is in the higher-rate band:
| Salary (already a higher-rate taxpayer) | £60,000 |
| Dividends (all higher-rate band) | £5,000 |
| Dividend allowance (0%) | £500 |
| Taxable dividends (£5,000 − £500) | £4,500 |
| £4,500 taxed at 35.75% | £1,608.75 |
| Total dividend tax | £1,608.75 |
Two quick contrasts: a basic-rate taxpayer with £800 of dividends pays just £32.25 (£300 taxable × 10.75%); a director on exactly £500 of dividends pays £0 and doesn't need to tell HMRC, because the total is within the allowance.
History of the dividend allowance
| Tax year | Allowance |
|---|---|
| 2016/17 to 2017/18 | £5,000 |
| 2018/19 to 2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 onwards (including 2026/27) | £500 |
The allowance was cut from £2,000 to £1,000 in April 2023, then to £500 in April 20242. It is not indexed to inflation and has no automatic review date.
ISA dividends and the allowance
Dividends inside a Stocks and Shares ISA don't count against the £500 allowance and are completely exempt from dividend tax. Only dividends from investments held outside ISAs and pensions count. An investor with all shares inside an ISA never touches the dividend allowance at all — which means the cuts from £5,000 down to £500 have had no impact on fully-wrapped ISA investors.