Dividend Allowance
What is the dividend allowance?
The dividend allowance is the amount of dividend income you can receive each tax year before you owe Dividend Tax. For 2024/25, it’s £500.
How has it changed?
It’s been cut significantly in recent years:
- 2017/18: £5,000
- 2018/19 to 2022/23: £2,000
- 2023/24: £1,000
- 2024/25 onwards: £500
What used to shelter substantial dividend income now covers very little.
What happens above the allowance?
You pay Dividend Tax on anything over £500:
- Basic rate taxpayers. 8.75%
- Higher rate taxpayers. 33.75%
- Additional rate taxpayers. 39.35%
Can dividends push you into a higher tax band?
Yes. Dividends get added to your other income to work out your tax band. If your salary is £48,000 and you receive £5,000 in dividends, your total income is £53,000. That’s over the £50,270 higher rate threshold.
That means some of your dividends would be taxed at 33.75% instead of 8.75%. Only the portion above the threshold gets the higher rate, but it’s easy to get caught out if you’re near the boundary.
Does this apply to ISAs and SIPPs?
No. Dividends received inside an ISA or SIPP are completely tax-free. The allowance only matters for investments held in a GIA.
How do you pay?
If you owe tax on dividends, HMRC usually adjusts your tax code to collect it. If you complete a Self Assessment tax return, you report it there.
Key points about the dividend allowance
- £500 tax-free dividends per year outside ISAs and pensions
- Has shrunk from £5,000. Much less generous than before
- Doesn’t affect ISAs or SIPPs. Dividends there are always tax-free
- Tax collected via your tax code or Self Assessment
More information
Scrimpr links to official sources so you can verify what you’ve learned.