Tax news · June 2026
The dividend allowance is now just 500 pounds, down from 5,000 pounds a few years ago. Here is what it means and how to soften it.
The amount of dividends you can receive tax free has been cut to the bone. The dividend allowance, which lets you receive dividends at a 0 per cent rate, is now just 500 pounds. Only a few years ago it was 5,000 pounds, and it has been reduced in stages through 2,000 pounds and then 1,000 pounds to where it sits today. For company directors and investors alike, this means more dividend income is now taxable.
The first 500 pounds of dividends in the year are still tax free, but everything above that is taxed at the dividend rates of 8.75 per cent, 33.75 per cent or 39.35 per cent depending on your income band. Because the allowance is so much smaller than before, the change quietly increases the tax on anyone who takes dividends, without any change in the headline rates.
Two groups feel this most. Company directors who pay themselves with a small salary and dividends now pay a little more tax on the dividend part than they used to. And private investors who hold shares or funds outside an ISA find that even a modest amount of dividend income is now taxable, where it would once have been covered by the allowance.
For directors, the salary and dividend mix is still tax efficient overall, but it is worth reviewing each year and considering whether splitting shares with a spouse, who has their own allowance and bands, helps. For investors, the single most effective step is to hold income producing shares and funds inside a stocks and shares ISA, where dividends are completely tax free and do not even need reporting. Pensions offer the same shelter. Moving holdings into these wrappers over time protects your dividend income for good.
This is another of the quiet tax rises that come from cutting allowances rather than raising rates, and it has crept up on a lot of people. Our view is that it does not change the fundamentals, because a salary and dividend mix is still the sensible way for most company owners to take their money, but it does make the tax wrappers more valuable than ever. For investors in particular, anyone still holding income shares outside an ISA when they have ISA allowance to spare is paying tax they could legally avoid.
We work out the most efficient way for you to take dividends, review the split between you and a spouse, and help investors move income producing holdings into tax free wrappers. Book a free call back and we will look at your position.
Just 500 pounds in the 2026/27 tax year, down from 5,000 pounds a few years ago. Dividends above that are taxed at 8.75, 33.75 or 39.35 per cent depending on your income band.
Hold income producing shares and funds inside an ISA or pension where dividends are tax free, and consider splitting shares with a spouse who has their own allowance and lower tax band.
We will review your salary and dividend mix and help shelter investment income. Book a free call back and we will look at your numbers.