If dividends are your only income, you can receive £13,070 in the 2026 to 2027 tax year without paying any tax: £12,570 covered by the Personal Allowance and £500 by the dividend allowance. Above that, dividends are taxed at 10.75% until your total income reaches £50,270, then at 35.75%. If any of your Personal Allowance is used by a salary or pension, the tax free slice of your dividends shrinks to as little as £500.
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How do the two allowances add together?
HMRC’s guidance on tax on dividends says you do not pay tax on dividend income that falls within your Personal Allowance, and you also get a £500 dividend allowance. They work differently. The Personal Allowance, £12,570 for 2026 to 2027, is an amount of income on which no tax is charged at all. The dividend allowance is a 0% rate: section 13A of the Income Tax Act 2007 charges the first £500 of dividends that would otherwise be taxed at the dividend rates at the dividend nil rate instead. So the £500 only helps once dividends have gone past whatever Personal Allowance is left, and it still uses up part of your tax bands. The detail is on our page on the dividend allowance.
For someone living entirely on dividends, for example a retired shareholder or a company owner who takes no salary, the two fit together neatly: £12,570 covered by the Personal Allowance, plus £500 at 0%, gives £13,070.
Why is the tax free amount smaller if you also have a salary or pension?
Dividends are treated as the top slice of your income under section 16 of the Income Tax Act 2007. Wages, pensions, rent and trading profits are taxed first and normally use up the Personal Allowance first. A director who takes a salary of £12,570 has used the whole allowance, so only the £500 dividend allowance is left for dividends. Our page on how savings and dividend income stack explains the ordering.
| Other income in 2026 to 2027 | Dividends with no tax |
|---|---|
| None | £13,070 |
| £6,000 pension | £7,070 |
| £12,570 salary or more | £500 |
The table assumes a full Personal Allowance and no savings interest. This is why the choice between salary and dividends for a director is a balance, covered on our page on salary or dividends for directors.
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Can savings interest add to the tax free amount?
Yes, for someone whose other income is low. The starting rate for savings lets up to £5,000 of interest be taxed at 0% where your other taxable income, not counting savings interest or dividends, is less than £17,570. Basic rate taxpayers also have a £1,000 Personal Savings Allowance. Section 25 of the Income Tax Act 2007 requires allowances to be deducted in the way that gives the greatest reduction in tax, so where it helps the Personal Allowance can be set against dividends and the interest covered by the savings rates instead.
Illustration only. Someone with no salary or pension who receives £13,070 of dividends and £6,000 of interest pays no tax: the Personal Allowance and dividend allowance cover the dividends, and the starting rate and Personal Savings Allowance cover the interest.
Where does tax start to bite?
For someone whose only income is dividends, the rates for 2026 to 2027 are:
| Total dividend income | Rate on each extra pound |
|---|---|
| Up to £13,070 | 0% |
| £13,070 to £50,270 | 10.75% |
| £50,270 to £100,000 | 35.75% |
| £100,000 to £125,140 | 35.75%, plus the loss of £1 of Personal Allowance for every £2 |
| Over £125,140 | 39.35% |
The basic rate band runs from £12,571 to £50,270 of total income, and the £500 taxed at 0% sits inside it rather than on top. Between £100,000 and £125,140 the withdrawal of the Personal Allowance, explained on our page on personal allowance tapering, makes the effective rate much higher than 35.75%.
There is another threshold that is not a tax rate. Dividends count towards adjusted net income, so once that passes £60,000 a household claiming Child Benefit starts to repay it at 1% for every £200, all of it by £80,000. See the High Income Child Benefit Charge.
What does the tax look like at different levels?
These figures are worked from the 2026 to 2027 rates and bands, assuming a full Personal Allowance and no other reliefs.
- Dividends of £30,000 and nothing else. £12,570 is covered by the Personal Allowance and £500 by the dividend allowance; the other £16,930 is taxed at 10.75%, about £1,820.
- Pension of £15,000 and dividends of £10,000. The pension uses the whole Personal Allowance, leaving £2,430 taxed at 20%, £486. Of the dividends, £500 is at 0% and £9,500 at 10.75%, £1,021.25.
- Salary of £12,570 and dividends of £40,000. No tax on the salary. Of the dividends, £500 is at 0%, £37,200 at 10.75% (£3,999) and the last £2,300, which takes total income over £50,270, at 35.75% (£822.25), a total of £4,821.25.
Can a couple double the tax free amount?
Each spouse or civil partner has their own Personal Allowance and dividend allowance, so a couple with no other income who each genuinely own shares can each receive £13,070 before tax. Marriage Allowance lets the lower earner transfer £1,260 of Personal Allowance to a partner who pays tax at the basic rate, but only where the lower earner’s income is below their Personal Allowance; a partner already receiving £13,070 of dividends would not qualify. HMRC suggests calling the Income Tax helpline rather than using its calculator where dividends are involved. See our page on Marriage Allowance.
Do you need to tell HMRC about dividends?
Not if they are within the dividend allowance. If dividends exceed both your unused Personal Allowance and the dividend allowance, they must be reported. HMRC’s guidance says:
- if you already file Self Assessment, include the dividends on the return;
- if you do not, and your dividends are up to £10,000, tell HMRC between the end of the tax year and 5 October, either by asking it to change your tax code or by calling the helpline;
- if dividends are over £10,000, you need to file a Self Assessment return, registering by 5 October after the end of the tax year if you do not normally file.
Dividends from shares held in an ISA are not taxed at all and are a separate route to tax free dividend income.
Is it different in Scotland?
No. Scottish taxpayers pay the same tax as the rest of the UK on dividends and savings interest, even though their wages and pensions are taxed at Scottish rates. The £13,070 figure therefore applies in Scotland too, for someone with no other income.
What mistakes come up most often?
- Assuming £13,070 is always tax free, when a salary or pension may already have used the Personal Allowance.
- Treating the £500 as extra band, then underestimating how soon dividends cross £50,270 into the higher rate.
- Forgetting that dividends count towards adjusted net income for Child Benefit and the Personal Allowance taper.
- Paying dividends without enough distributable profits, which makes them unlawful whatever the tax position. See how to pay dividends legally.
If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.
Related Accountapedia entries
- What income is tax free in the UK
- How much liquidation costs and who pays
- Dividend cover
- Does a property letting company get business relief
- Can you get an extension to file company accounts
Sources
- GOV.UK: Tax on dividends
- GOV.UK: Income tax rates
- legislation.gov.uk: Act 2007 c. 3, section 13A
- legislation.gov.uk: Act 2007 c. 3, section 16
- legislation.gov.uk: Act 2007 c. 3, section 25
- GOV.UK: Apply tax free interest on savings
- GOV.UK: Child benefit tax charge
- GOV.UK: Marriage allowance
- GOV.UK: Scottish income tax
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.