What is the dividend allowance and how much tax do I pay on my dividend income? Are dividends received in an ISA taxable?
The dividend allowance allows shareholders to receive dividend income tax free. Dividends received in excess are taxed depending on what tax band they fall into.
The dividend allowance is the amount you can receive tax free from dividends. The allowance has reduced over the years as follows:
2026/27 tax year – £500
2025/26 tax year – £500
2024/25 tax year – £500
2023/24 tax year – £1,000
2022/23 tax year – £2,000
2021/22 tax year – £2,000
2020/21 tax year – £2,000
2019/20 tax year – £2,000
2018/19 tax year – £2,000
2017/18 tax year – £5,000
2016/17 tax year – £5,000
NOTE: The rules for dividend taxes were different prior to April 2016.
The dividend allowance from April 2026 will remain at £500.
A basic rate taxpayer will pay 10.75% tax on dividends
A higher rate taxpayer will pay 35.75% tax on dividends
An additional rate taxpayer will pay 39.35% tax on dividends
The rates have increased by 2% for basic and higher rate taxpayers.
Yes. The personal allowance in the current tax year 2025/26 is £12,570. As a result if an individual only had dividend income then dividends of £12,570 would be tax free and covered by the personal allowance and a further £500 would be tax free covered by the dividend allowance.
Dividend taxes would be payable on dividends in excess of £13,070 (in tax year 2025/26).
As an example if an individual receives a salary of £30,000 and dividends of £5,000, the tax on the dividends would be as follows:
The personal allowance of £12,570 is used up by the salary so no personal allowance is available.
The individual has total income of £35,000 and is therefore a basic rate taxpayer. Basic rate tax payers pay tax on dividends at 8.75% in 2025/26.
The £5,000 dividends would therefore be taxed as follows:
The first £500 is tax free as it is covered by the dividend allowance.
The next £4,500 is taxed at basic rate dividend tax of 8.75%. (From April 2026 the rate will be 10.75%)
Total tax payable on the dividends is £393.75.
Individuals who are already registered for self-assessment can just include the dividends on their tax return.
Dividend income under £10,000 can be paid via your tax code. You must contact HMRC and inform them of your dividend income and they will adjust your tax code accordingly.
Should dividend income exceed £10,000 then a self-assessment tax return is required. Here is how to register.
No. Dividends received from shares held in an ISA are not taxable.
With dividend allowances remaining at the low amount of £500 in April 2027, individuals who would be required to pay dividend taxes should consider transferring their shareholdings into an ISA.
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