The dividend tax-free allowance for 2024/25 is £500. That is a 0% band on the first £500 of dividend income you receive in the tax year, and it applies to everyone regardless of total income or employment status.1GOV.UK. Tax on Dividends The allowance was £1,000 in 2023/24, so if you sat comfortably under the threshold last year you may owe tax on dividends this year that were previously covered. Anything above £500 is taxed at 8.75%, 33.75%, or 39.35% depending on which income tax band the dividends fall into.
How the £500 Allowance Actually Works
The allowance is a nil-rate band, not an exemption. You still receive the £500 of dividend income, but you pay 0% tax on it. One detail catches people out: although you pay no tax on that first £500, the income still counts toward your total when working out which tax band you fall into. So £500 of tax-free dividends can push your other income into a higher band.
The figure has fallen fast. It was £2,000 in 2022/23, dropped to £1,000 for 2023/24, and halved again to £500 for 2024/25.1GOV.UK. Tax on Dividends It stays at £500 for 2025/26 and 2026/27.
Where the £500 Sits Against Your Personal Allowance
The standard Personal Allowance for 2024/25 is £12,570. That is the total income from all sources you can receive before paying any income tax.2GOV.UK. Income Tax Rates and Personal Allowances The £500 dividend allowance sits on top of the Personal Allowance rather than inside it. Someone with no other income could receive up to £13,070 in dividends (£12,570 + £500) before paying a penny of tax.
For most people the Personal Allowance is already used up by salary or pension, so dividends start being taxed as soon as the £500 runs out.
Dividend Tax Rates Above the £500
Once your dividends exceed £500, the rate you pay depends on your income tax band. Add your dividend income to your other income for the year to work out where it lands.1GOV.UK. Tax on Dividends
The 2024/25 income tax bands are:3HM Revenue & Customs. Income Tax Rates and Allowances for Current and Previous Tax Years
- Basic rate: taxable income up to £37,700 (total income up to £50,270 after the Personal Allowance)
- Higher rate: taxable income from £37,701 to £125,140
- Additional rate: taxable income above £125,140
The dividend rates within those bands for 2024/25 are:1GOV.UK. Tax on Dividends
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
These rates are lower than the equivalent rates on employment income, which is why owner-directors often prefer dividends to salary.
Two Traps Dividends Can Trigger
The £100,000 Personal Allowance Taper
If your adjusted net income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 above that threshold. By £125,140 the entire £12,570 allowance is gone.2GOV.UK. Income Tax Rates and Personal Allowances Dividend income counts toward adjusted net income, so a large payout can trigger the taper even if your salary alone sits below £100,000.
High Income Child Benefit Charge
If you or your partner claim Child Benefit and either of you has adjusted net income above £60,000, a clawback charge applies. For every £200 over £60,000 you repay 1% of the Child Benefit; at £80,000 or above you repay all of it.4GOV.UK. High Income Child Benefit Charge Dividends are included. If they push you over £60,000 you must register for Self Assessment to pay the charge, even where your employment income alone would not have triggered it.
Do You Need to Report Your Dividends?
If your dividends stay within the £500 allowance and your other income runs through PAYE, you have nothing to do. Above the allowance, how you report depends on the amount.
Under £10,000
If you do not already file Self Assessment and your dividend income is under £10,000, contact HMRC after the end of the tax year but before 5 October to report it. HMRC can adjust your tax code so the tax is collected automatically from your wages or pension the following year.5GOV.UK. Tax on Dividends – How to Report Tax on Dividends
£10,000 or More
Dividend income of £10,000 or more in a tax year triggers a mandatory Self Assessment filing. For 2024/25, the paper return deadline is 31 October 2025 and the online deadline is 31 January 2026. Any tax owed must also be paid by 31 January 2026.6GOV.UK. Self Assessment Tax Returns – Deadlines
Missing the deadline triggers escalating penalties: an immediate £100 fine, then £10 per day after three months (up to £900), then a further charge of 5% of the tax owed or £300 (whichever is greater) after six months, and another 5% or £300 after twelve months.7GOV.UK. Self Assessment Tax Returns – Penalties Interest accrues on unpaid tax from the due date. These penalties apply even if you owe nothing, so file on time regardless.
Sheltering Dividends From Tax
With the allowance now at £500, the simplest way to keep dividends tax-free is to hold the shares inside a wrapper.
Stocks and Shares ISA
Dividends earned on shares held within an ISA are entirely tax-free, with no cap on how much dividend income the ISA can generate. The annual ISA subscription limit for 2024/25 is £20,000, and it remains at £20,000 in following years.8GOV.UK. Individual Savings Accounts (ISAs) – Overview You can split that £20,000 across cash, stocks and shares, innovative finance, and Lifetime ISAs, but the total cannot exceed £20,000 in one tax year. Existing shares held outside an ISA cannot simply be transferred in; you would need to sell and repurchase within the ISA, which could crystallise capital gains on the sale.
Self-Invested Personal Pension
Dividends received within a SIPP are also free from income tax, and contributions attract tax relief. The annual pension allowance is £60,000 for 2024/25, though your actual limit depends on earnings and any unused allowance carried forward. Pension funds are locked away until at least age 55 (rising to 57 from April 2028), which is the trade-off for long-term tax shelter.
Personal Savings Allowance Is Separate
Interest from savings accounts falls under a different allowance. Basic rate taxpayers get £1,000 of tax-free interest, higher rate taxpayers get £500, and additional rate taxpayers get none.9GOV.UK. Tax on Savings Interest The two allowances are independent, so a basic rate taxpayer can receive £500 of tax-free dividends and up to £1,000 of tax-free interest in the same year.
What Changes From April 2026
The rates above hold for 2024/25 and 2025/26. From 6 April 2026, dividend tax rates rise by 1.25 percentage points at the basic and higher bands:1GOV.UK. Tax on Dividends
- Basic rate: 8.75% rising to 10.75%
- Higher rate: 33.75% rising to 35.75%
- Additional rate: unchanged at 39.35%
The £500 allowance itself does not change for 2026/27. But dividends above it will cost more. A basic rate taxpayer receiving £5,000 in dividends pays £393.75 in tax for 2024/25; under the 2026/27 rates the same dividends cost £483.75, roughly £90 more. For higher rate taxpayers the jump is larger. If you control when your own company declares dividends, the timing around April 2026 is worth planning around.