If you receive income from dividends, such as from shares in a company or investments, it’s important to understand how the dividend allowance works and when you may need to pay tax.
For the 2026/27 tax year, everyone receives a £500 dividend allowance. If your total dividend income falls within this allowance, you won’t pay tax on that portion. In addition, if your total income, including dividends, is within your Personal Allowance, you may not have any tax to pay at all.
Any dividend income above the £500 allowance is taxed according to your Income Tax band. The current dividend tax rates for the 2026/27 tax year are:
- Basic Rate: 10.75%
- Higher Rate: 35.75%
- Additional Rate: 39.35%
To work out which rate applies, your dividend income is added to your other taxable income, such as your salary, pension or rental income. This determines which Income Tax band you fall into and how much tax is payable on your dividends above the allowance.
Dividend income can be a tax-efficient way to receive income, particularly for company directors and investors, but it’s important to understand how it interacts with your other earnings to avoid unexpected tax bills.
If you’re unsure how your dividend income is taxed or would like help planning your finances, we’re always happy to help.
