What is Dividend Allowance? UK Definition 2026/27
Quick Answer
The amount of dividend income you can receive tax-free each year - £500 for 2026/27.
Definition of Dividend Allowance
The dividend allowance is a tax-free amount of dividend income available to all taxpayers. For 2026/27, it's £500, significantly reduced from £2,000 in 2022/23.
The allowance applies before dividend tax rates. It uses up your basic rate band but doesn't affect your Personal Allowance. Couples can each use their own allowance, so joint shareholdings can benefit from two allowances.
Dividend Allowance — Key Facts for 2026/27
| 2026/27 allowance | £500 |
| 2023/24 allowance | £1,000 |
| 2022/23 allowance | £2,000 |
| Available to | All UK taxpayers |
How Dividend Allowance Works — Example
- 1Total dividend income: £5,000
- 2Dividend allowance: £500 (tax-free)
- 3Taxable dividends: £4,500
- 4If basic rate taxpayer: £4,500 × 8.75% = £394
- 5If higher rate taxpayer: £4,500 × 33.75% = £1,519
How Dividend Allowance Affects Your Tax
The reduced allowance means even small dividend portfolios now incur tax. Consider using ISAs for dividend-paying investments, as ISA dividends are completely tax-free.
Official HMRC Guidance on Dividend Allowance
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Dividend allowanceFrequently Asked Questions about Dividend Allowance
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.