The UK dividend allowance in 2025/26: £500 tax-free, then 8.75% to 39.35%

For the 2025/26 tax year, the first £500 of dividend income is tax-free. Above that, dividends are taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers. That allowance has shrunk fast: it was £2,000 as recently as the 2022/23 tax year and has been cut in two large steps since, though it held steady for 2025/26 after the last cut. Anyone with a share portfolio, or who takes dividends from their own company, needs the current figure rather than an older one to estimate what they actually owe.

The 2025/26 dividend allowance and rates

HMRC sets one tax-free allowance and three rates, depending on which Income Tax band the dividend income falls into once it is added on top of other income for the year:

These figures are confirmed in HMRC's policy paper on changes to tax rates for property, savings and dividend income, and summarised for individual taxpayers on GOV.UK's dividend tax guidance. The allowance applies once per person, on top of the Income Tax Personal Allowance, and is available regardless of how much other income someone has.

How much the allowance has shrunk

The dividend allowance was cut in two large steps over three tax years, then held flat:

A shareholder receiving £2,000 in dividends paid no tax at all on it in 2022/23. The same £2,000 received in 2025/26, once the £500 allowance is used up, has £1,500 taxable at whichever rate applies to that person's income — a change driven entirely by the shrinking allowance, with the underlying dividend income unchanged.

Why the rate depends on your other income

Dividend income is treated as the top slice of total income for the year, added on above salary, pension income, self-employment profits and savings interest — not taxed in isolation. That means the Personal Allowance and the basic rate band are used up by other income first, and only the portion of dividend income that falls into a given band is taxed at that band's rate. Someone with a modest salary and a larger dividend income can have part of their dividends taxed at 8.75% and part at 33.75% in the same tax year, depending on exactly where the basic rate band runs out.

Worked example: a basic-rate taxpayer

Take someone with a £40,000 salary and £5,000 of dividend income from a small share portfolio in 2025/26. Their salary already uses most of the basic rate band, which runs to £50,270 of total income, leaving £10,270 of it unused — comfortably enough to hold the whole £5,000 of dividends within the basic rate:

Worked example: a higher-rate taxpayer

Now take a company director with a £60,000 salary — already above the £50,270 higher-rate threshold — who also takes £30,000 in dividends from their own company. Because the salary alone already uses up the entire basic rate band, all of the dividend income falls into the higher rate:

The two examples share the same £500 allowance but land on very different bills, because the salary in each case determines how much of the basic rate band is left for the dividends to use.

Dividends inside an ISA or pension

None of the rates or the allowance above apply to dividends received inside a Stocks and Shares ISA or a pension wrapper — that income is simply not taxed, regardless of size, and does not use up the £500 allowance either. The allowance and rates in this article apply only to dividend income held outside a tax-advantaged wrapper, which is the more common situation for anyone holding shares directly or running dividends from their own company.

What changes from April 2026

From 6 April 2026, the basic and higher dividend rates each rise by 2 percentage points, to 10.75% and 35.75%. The additional rate stays at 39.35%, and the £500 allowance is unchanged. That means the 2025/26 figures in this article are already the last tax year before that increase takes effect, making them a useful baseline for comparing what a given dividend income costs before and after the change.

Working out which rate applies

The income tax calculator shows where salary or other income sits against the 2025/26 Income Tax bands, which is the figure needed to know how much of the basic rate band is already used up before dividend income is added on top — the step that decides whether dividends land at 8.75%, 33.75% or a mix of both. Anyone tracking dividend yield across a portfolio can also use the dividend yield calculator to work out what a holding actually pays before applying the tax rates above.

Telling HMRC about dividend income

Dividends within the £500 allowance do not need to be reported at all. Above that, how dividend income gets reported depends on the total amount for the year. Anyone already filing a Self Assessment return simply includes it there. Someone who does not normally file a return, and has dividend income up to £10,000, can instead tell HMRC by phone or have the tax collected through a PAYE tax code adjustment, without registering for Self Assessment at all. Dividend income above £10,000 in a tax year requires registering for Self Assessment and filing a full return, even for someone who has never filed one before — a materially higher bar than simply exceeding the £500 allowance. GOV.UK sets out the process on its how to report tax on dividends page.

Sources

• GOV.UK: Tax on dividends
• HM Revenue & Customs: Changes to tax rates for property, savings and dividend income
• GOV.UK: Income Tax rates and Personal Allowances
• GOV.UK: How to report tax on dividends

This is general information, not tax advice. How dividend income is taxed depends on your full income for the year, including whether shares are held inside an ISA or pension. For a decision about your own situation, check HMRC's guidance or speak to a regulated tax adviser or accountant.