Tax on Dividends

Dividends are payments you receive when you own shares in a company, and most people can earn some dividend income without paying tax. However, once your dividends exceed the tax-free allowances, you'll need to pay tax at rates that depend on your Income Tax band and may need to report this income to HMRC.

What is the dividend allowance?

The dividend allowance is the amount of dividend income you can receive tax-free each year, on top of your Personal Allowance. For the 2025/26 tax year, the dividend allowance is £500.

This means you can earn up to £500 in dividends without paying any tax on them. Any dividend income above this amount is taxable.

You do not pay tax on dividends from shares held in an ISA (Individual Savings Account), regardless of how much you receive.

How the Personal Allowance affects dividends

Your Personal Allowance is the amount of income you can earn each year without paying tax. For the 2025/26 tax year, this is £12,570 for most people.

You do not pay tax on any dividend income that falls within your Personal Allowance. This means if you have unused Personal Allowance (for example, if your other income is below £12,570), your dividends can use up this tax-free amount before the dividend allowance applies.

Dividend tax rates

Once your dividend income exceeds both your available Personal Allowance and the £500 dividend allowance, you pay tax at rates that depend on which Income Tax band you fall into.

The dividend tax rates for 2026/27 are:

• Basic rate: 10.75% on dividends above the allowance
• Higher rate: 35.75% on dividends above the allowance
• Additional rate: 39.35% on dividends above the allowance

To work out which tax band applies to you, add your total dividend income to your other income (such as wages, pension, or rental income). You may pay tax at more than one rate if your total income pushes you into a higher band.

Example calculation

Here's how dividend tax works in practice:

Say you receive £3,000 in dividends and earn £29,570 in wages in the 2026/27 tax year. Your total income is £32,570.

You subtract your Personal Allowance of £12,570, leaving taxable income of £20,000. This falls within the basic rate tax band, so you would pay:

• 20% Income Tax on £17,000 of wages
• No tax on £500 of dividends (covered by the dividend allowance)
• 10.75% tax on £2,500 of dividends

This means you'd owe £268.75 in dividend tax (10.75% of £2,500).

When you need to tell HMRC

You need to report dividend income to HMRC if you have dividend payments that exceed both your unused Personal Allowance and your dividend allowance.

You do not need to tell HMRC if your dividends fall within the dividend allowance for the tax year.

Reporting dividends up to £10,000

If your taxable dividend income is £10,000 or less, you have two options for reporting it:

If you already complete a Self Assessment tax return, you must include your dividend income on your return by the deadline (31 January online, or 31 October by paper).

If you do not complete a Self Assessment tax return, you must let HMRC know after the end of the tax year (5 April) but before 5 October. You can do this by:

• Asking HMRC to update your tax code so the tax is collected from your wages or pension, or
• Contacting the HMRC helpline for individuals

Reporting dividends over £10,000

If your taxable dividend income exceeds £10,000, you must complete a Self Assessment tax return.

If you do not usually send a tax return, you must register for Self Assessment and tell HMRC you need to complete one. You must do this by 5 October after the end of the tax year (5 April) in which you received the income.

Who cannot use the online tax checker

HMRC provides an online tool to check how much tax you may owe on dividends, but you cannot use it if you:

• File a Self Assessment tax return
• Receive any foreign income
• Claim Marriage Allowance
• Claim Blind Person's Allowance
• Have a tax code other than 1257L

If you meet the criteria to use the tool, you'll need details of your employment or pension income and any taxable state benefits for the tax year you're checking.

Sources

• Tax on dividends
• Check how much tax you pay on dividends and interest from savings

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.