What is the UK Dividend Allowance for 2026/27?

The Dividend Allowance for 2026/27 is £500 - the first £500 of dividend income each tax year is tax-free regardless of which Income Tax band the rest of your income falls in. Above £500, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate). The allowance has dropped sharply: from £5,000 in 2017/18 to £2,000 in 2018/19 to £1,000 in 2023/24, then to £500 in 2024/25 - frozen at £500 since.

How are dividends taxed in the UK?

Dividend income stacks on top of your other taxable income and uses your Personal Allowance and the £500 Dividend Allowance before being taxed at the dividend-specific rates (10.75% basic, 35.75% higher, 39.35% additional). Dividends do NOT attract National Insurance, which is one of the main tax advantages of operating through a Limited company over employment.

Does the £500 allowance use up my Personal Allowance?

No - the £500 Dividend Allowance is independent and stacks on top of any unused Personal Allowance. So a non-employed taxpayer with £12,570 dividend income uses the full PA (no tax). Add another £500 and it is covered by the Dividend Allowance. Above £13,070 of dividend-only income, basic-rate dividend tax (10.75%) starts to apply.

Why are dividend rates lower than employment income rates?

Dividends come from post-Corporation-Tax profits - the company has already paid 19-25% Corporation Tax on those profits before distributing them as dividends. The lower personal dividend rate (10.75% basic vs 20% Income Tax) is intended to avoid full double-taxation. In practice the total bite (Corp Tax + Dividend Tax) on small-company profits is around 26% for basic-rate, vs 28% for employment income (20% IT + 8% NI) - the gap has narrowed significantly since 2016.

How does the contractor "salary + dividend mix" use this?

Limited-company contractors operating outside IR35 typically take a £12,570 director salary (absorbs the Personal Allowance with no Income Tax, only 15% employer NI on the salary above the Secondary Threshold), then take post-Corporation-Tax profits as dividends - the first £500 tax-free, the next £37,200 at 10.75%, and so on. The full mechanics are modelled in the /contractor-calculator outside-IR35 mode.

UK Dividend Allowance (2026/27)

The first £500 of UK dividend income each tax year is tax-free under the Dividend Allowance. Above that, dividends are taxed at 10.75% (basic), 35.75% (higher), or 39.35% (additional). The allowance has been cut materially since 2017 - from £5,000 down to £500 in the space of seven tax years.

Dividend Allowance history

Tax year	Allowance
2016/17 to 2017/18	£5,000
2018/19 to 2022/23	£2,000
2023/24	£1,000
2024/25 onwards	£500

Dividend tax rates 2026/27

Tax band	Salary range	Dividend rate
Personal Allowance + £500 Dividend Allowance	First £13,070	0%
Basic rate	£13,071 to £50,270	10.75%
Higher rate	£50,271 to £125,140	35.75%
Additional rate	Above £125,140	39.35%

Frequently asked questions

What is the UK Dividend Allowance for 2026/27?: The Dividend Allowance for 2026/27 is £500 - the first £500 of dividend income each tax year is tax-free regardless of which Income Tax band the rest of your income falls in. Above £500, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate). The allowance has dropped sharply: from £5,000 in 2017/18 to £2,000 in 2018/19 to £1,000 in 2023/24, then to £500 in 2024/25 - frozen at £500 since.
How are dividends taxed in the UK?: Dividend income stacks on top of your other taxable income and uses your Personal Allowance and the £500 Dividend Allowance before being taxed at the dividend-specific rates (10.75% basic, 35.75% higher, 39.35% additional). Dividends do NOT attract National Insurance, which is one of the main tax advantages of operating through a Limited company over employment.
Does the £500 allowance use up my Personal Allowance?: No - the £500 Dividend Allowance is independent and stacks on top of any unused Personal Allowance. So a non-employed taxpayer with £12,570 dividend income uses the full PA (no tax). Add another £500 and it is covered by the Dividend Allowance. Above £13,070 of dividend-only income, basic-rate dividend tax (10.75%) starts to apply.
Why are dividend rates lower than employment income rates?: Dividends come from post-Corporation-Tax profits - the company has already paid 19-25% Corporation Tax on those profits before distributing them as dividends. The lower personal dividend rate (10.75% basic vs 20% Income Tax) is intended to avoid full double-taxation. In practice the total bite (Corp Tax + Dividend Tax) on small-company profits is around 26% for basic-rate, vs 28% for employment income (20% IT + 8% NI) - the gap has narrowed significantly since 2016.
How does the contractor "salary + dividend mix" use this?: Limited-company contractors operating outside IR35 typically take a £12,570 director salary (absorbs the Personal Allowance with no Income Tax, only 15% employer NI on the salary above the Secondary Threshold), then take post-Corporation-Tax profits as dividends - the first £500 tax-free, the next £37,200 at 10.75%, and so on. The full mechanics are modelled in the /contractor-calculator outside-IR35 mode.

Dividend Allowance history

Dividend tax rates 2026/27

Frequently asked questions

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