Dividend Allowance 2025-26: £500 — How Much More Tax Are You Paying?
The annual dividend allowance has dropped from £5,000 to just £500 over the past seven years. If you receive dividend income, this has a significant impact on your tax bill. See exactly how much more you now pay.
History of the dividend allowance
| Tax year | Dividend allowance | Change from prior year |
|---|---|---|
| 2017-18 to 2022-23 | £5,000 → £2,000 | — |
| 2022-23 | £2,000 | — |
| 2023-24 | £1,000 | −£1,000 |
| 2024-25 | £500 | −£500 |
| 2025-26 | £500 | No change |
The allowance fell from £2,000 to £500 in two steps (2023-24 and 2024-25). It remains at £500 for 2025-26.
£20,000 salary — dividend tax comparison
| Dividends | Tax (2022-23, £2k allowance) | Tax (2025-26, £500 allowance) | Extra tax | Details |
|---|---|---|---|---|
| £500 | £0 | £0 | — | View → |
| £1,000 | £0 | £44 | +£44 | View → |
| £1,500 | £0 | £88 | +£88 | View → |
| £2,000 | £0 | £131 | +£131 | View → |
| £3,000 | £88 | £219 | +£131 | View → |
| £5,000 | £263 | £394 | +£131 | View → |
| £8,000 | £525 | £656 | +£131 | View → |
| £10,000 | £700 | £831 | +£131 | View → |
| £15,000 | £1,138 | £1,269 | +£131 | View → |
| £20,000 | £1,575 | £1,706 | +£131 | View → |
£30,000 salary — dividend tax comparison
| Dividends | Tax (2022-23, £2k allowance) | Tax (2025-26, £500 allowance) | Extra tax | Details |
|---|---|---|---|---|
| £500 | £0 | £0 | — | View → |
| £1,000 | £0 | £44 | +£44 | View → |
| £1,500 | £0 | £88 | +£88 | View → |
| £2,000 | £0 | £131 | +£131 | View → |
| £3,000 | £88 | £219 | +£131 | View → |
| £5,000 | £263 | £394 | +£131 | View → |
| £8,000 | £525 | £656 | +£131 | View → |
| £10,000 | £700 | £831 | +£131 | View → |
| £15,000 | £1,138 | £1,269 | +£131 | View → |
| £20,000 | £1,575 | £1,706 | +£131 | View → |
£40,000 salary — dividend tax comparison
| Dividends | Tax (2022-23, £2k allowance) | Tax (2025-26, £500 allowance) | Extra tax | Details |
|---|---|---|---|---|
| £500 | £0 | £0 | — | View → |
| £1,000 | £0 | £44 | +£44 | View → |
| £1,500 | £0 | £88 | +£88 | View → |
| £2,000 | £0 | £131 | +£131 | View → |
| £3,000 | £88 | £219 | +£131 | View → |
| £5,000 | £263 | £394 | +£131 | View → |
| £8,000 | £525 | £656 | +£131 | View → |
| £10,000 | £700 | £831 | +£131 | View → |
| £15,000 | £1,820 | £2,326 | +£506 | View → |
| £20,000 | £3,508 | £4,014 | +£506 | View → |
£50,000 salary — dividend tax comparison
| Dividends | Tax (2022-23, £2k allowance) | Tax (2025-26, £500 allowance) | Extra tax | Details |
|---|---|---|---|---|
| £500 | £0 | £0 | — | View → |
| £1,000 | £0 | £101 | +£101 | View → |
| £1,500 | £0 | £270 | +£270 | View → |
| £2,000 | £0 | £439 | +£439 | View → |
| £3,000 | £270 | £776 | +£506 | View → |
| £5,000 | £945 | £1,451 | +£506 | View → |
| £8,000 | £1,958 | £2,464 | +£506 | View → |
| £10,000 | £2,633 | £3,139 | +£506 | View → |
| £15,000 | £4,320 | £4,826 | +£506 | View → |
| £20,000 | £6,008 | £6,514 | +£506 | View → |
£60,000 salary — dividend tax comparison
| Dividends | Tax (2022-23, £2k allowance) | Tax (2025-26, £500 allowance) | Extra tax | Details |
|---|---|---|---|---|
| £500 | £0 | £0 | — | View → |
| £1,000 | £0 | £169 | +£169 | View → |
| £1,500 | £0 | £338 | +£338 | View → |
| £2,000 | £0 | £506 | +£506 | View → |
| £3,000 | £338 | £844 | +£506 | View → |
| £5,000 | £1,013 | £1,519 | +£506 | View → |
| £8,000 | £2,025 | £2,531 | +£506 | View → |
| £10,000 | £2,700 | £3,206 | +£506 | View → |
| £15,000 | £4,388 | £4,894 | +£506 | View → |
| £20,000 | £6,075 | £6,581 | +£506 | View → |
What is the dividend allowance?
The dividend allowance is the amount of dividend income you can receive each tax year before paying dividend tax. In 2025-26, this is £500. Dividends within this allowance are still technically within your tax band — they just attract 0% tax. This matters because they still use up your basic or higher rate band capacity.
Dividend tax rates 2025-26
Dividends above the £500 allowance are taxed at: 8.75% (basic rate — income up to £50,270); 33.75% (higher rate — £50,271 to £125,140); 39.35% (additional rate — above £125,140). Dividends are always taxed on top of your other income (salary, pension, etc.).
Who is most affected by the reduction in the dividend allowance?
Director-shareholders who pay themselves a small salary and the rest in dividends are most affected. A higher-rate taxpayer who previously received £2,000 in dividends within the allowance now pays 33.75% on £1,500 more — an extra £506/year compared to 2022-23. Small investors with UK shares outside an ISA are also significantly affected.
How to reduce dividend tax
The most effective shelter for dividend income is a Stocks and Shares ISA — dividends within an ISA are completely tax-free, with no need to declare them. For larger portfolios, SIPP contributions can also reduce your adjusted net income, which may bring dividends back into the basic rate band.
Frequently asked questions
How much is the dividend allowance in 2025?
The dividend allowance in 2025-26 is £500. This means the first £500 of dividend income each year is tax-free, regardless of your other income. Any dividends above £500 are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) depending on your total income band.
Has dividend tax increased?
Yes — significantly. The dividend allowance has fallen from £5,000 (2017-18) to £2,000 (2018-2023) to £1,000 (2023-24) to £500 (2024-25 onwards). At 8.75%, each £1,000 reduction in the allowance costs a basic-rate taxpayer £87.50 more in tax per year. Higher-rate taxpayers pay an extra £337.50 per £1,000 allowance reduction.
Do I need to declare dividends under £500?
You generally do not need to declare dividends under £500 if you have no other untaxed income to report. However, if you normally complete a Self Assessment tax return, you must include all dividend income regardless of amount. If you are not in Self Assessment, HMRC may adjust your tax code to collect any tax owed on dividends above the allowance.
What are the dividend tax rates in 2025-26?
Dividend tax rates in 2025-26 are: 0% on the first £500 (dividend allowance); 8.75% on dividends within the basic rate band (income up to £50,270); 33.75% on dividends within the higher rate band (£50,270 to £125,140); 39.35% on dividends above £125,140 (additional rate band). Dividends are taxed on top of other income, using the remaining band capacity after salary.