The dividend allowance is the amount of dividend income a person can receive in a tax year before dividend tax is due. It is £500 for 2025 to 2026 and again for 2026 to 2027, per gov.uk, and it was £1,000 in 2023 to 2024, the last step of a run of cuts from £5,000 when it was introduced. This page is written for the director asking how much dividend they can pay themselves tax free: the allowance itself, the personal allowance it sits beside, how the two combine for a director with a small salary, and what the allowance does not do, which is reduce the tax on the dividends above it. The figures are HMRC's as published, and the free dividend voucher template on this site works the amount for each shareholder.
£500, and what it is an allowance against
The allowance applies to dividend income only, and it is not a deduction from total income: £500 of dividends are taxed at nothing, and every pound above is taxed at the rate for its band. It does not matter which company paid the dividend or how many companies did; the allowance is per person, per tax year. A director and their spouse who both hold shares each have one, which is the ordinary reason a family company issues shares to both.
How it sits with the personal allowance
Dividends also use up any personal allowance that salary has not, and £12,570 of it is available in 2026 to 2027 per gov.uk. A director paid a salary of £12,570 has used the personal allowance in full, so their first £500 of dividends is tax free and the rest is taxed. A director paid £5,000 has £7,570 of personal allowance left, and that plus the £500 dividend allowance means £8,070 of dividends before any dividend tax. The order is fixed: personal allowance first, dividend allowance next, then the bands.
The years, side by side
gov.uk's table of rates and allowances gives the dividend allowance as £500 for 2026 to 2027, £500 for 2025 to 2026, £500 for 2024 to 2025 and £1,000 for 2023 to 2024. A director working out an old year's return uses that year's allowance and that year's rates, and the dividend allowance 2023/24 figure of £1,000 is the one most still remember. The rates above the allowance changed on 6 April 2026 as well, so an old-year figure is not a guide to a new-year bill.
How much a director can pay themselves tax free
The honest answer is the personal allowance not used by salary plus £500, and nothing more, because every pound of dividend above that is taxed at 10.75 percent at least. What the allowance does not do is make dividends cheaper than salary by itself; the case for a dividend rests on the absence of National Insurance and on corporation tax having already been paid, not on the £500. The free ltd company tax calculator on this site shows the whole picture for a given split rather than the allowance on its own.
Questions people ask about dividend allowance 2025/26
Is the dividend allowance the same as the personal allowance?
No. The personal allowance is £12,570 of any income; the dividend allowance is £500 of dividend income specifically, and it applies after the personal allowance has been used, per gov.uk. A director can use both in the same year.
Does the allowance reduce the tax on dividends above it?
No. It sets the first £500 to nothing and leaves the rate on everything above unchanged. It also still counts towards total income when the band is found, so a dividend inside the allowance can still push other income into a higher band.
Can an unused allowance be carried forward?
No. The allowance is for the tax year and is lost if unused, which is the ordinary argument for declaring at least £500 of dividends in every year the company has the retained profit to do so.