What is dividend tax?
Dividend tax is the income tax you pay on dividends — the cash a company pays its shareholders — when the shares are held outside an ISA or pension. The first £500 of dividends a year are tax-free (the dividend allowance). Above that, from 6 April 2026, the rates are 10.75 % for basic-rate taxpayers, 35.75 % for higher rate and 39.35 % for additional rate. Nothing is withheld by the company: you report the dividends yourself. Inside a Stocks and Shares ISA dividends are completely tax-free.
How it works
- Paid gross. A £100 dividend arrives as £100. The tax comes later, through your tax return or your tax code.
- £500 allowance. Add up all dividends in the tax year (6 April to 5 April). The first £500 are free. The allowance was £2,000 until 2023 and £1,000 in 2023/24 — it has shrunk fast.
- Your income decides the rate. Dividends sit on top of your other income. Whatever falls in the basic-rate band is taxed at 10.75 %, in the higher-rate band at 35.75 %, above that at 39.35 %.
- Reporting. Up to £10,000 of dividends can be handled through your tax code (tell HMRC); above that you need Self Assessment. Below the allowance there is nothing to do.
- Foreign shares. A US or German company deducts its own withholding tax first (often 15 % with the right form); the UK then taxes the dividend as above, and you can usually claim credit for the foreign tax.
The worked example
You receive £800 in dividends in a year from shares held in an ordinary dealing account. £800 − £500 allowance = £300 taxable. As a basic-rate taxpayer: 300 × 10.75 % = £32.25. As a higher-rate taxpayer: 300 × 35.75 % = £107.25.
The same £800 inside a Stocks and Shares ISA: £0, and nothing to report.
Dividends versus gains
The UK taxes dividends and capital gains separately, at different rates and with different allowances: £500 for dividends, £3,000 for gains. An income-paying share therefore uses up its small allowance fast, while a share that pays nothing and just rises only meets capital gains tax the day you sell. Kiggo shows a share's dividend yield and explains it — it does not tell you which kind to prefer.
The typical beginner's mistake
Building up a portfolio of dividend shares in an ordinary dealing account and never noticing that the £500 allowance was used up in February — then getting a bill through Self Assessment a year later. The ISA exists precisely for this.
How you see it in Kiggo
Kiggo shows the dividend yield of a share and, for ETFs, whether they pay out or accumulate. What ends up in your pocket is the dividend minus your dividend tax — Kiggo shows the gross figure, as the company reports it. Kiggo does not calculate your tax.
Related terms
Frequently asked questions
What are the dividend tax rates for 2026/27?
10.75 % (basic rate), 35.75 % (higher rate) and 39.35 % (additional rate), on dividends above the £500 allowance. The basic and higher rates went up by 2 percentage points on 6 April 2026.
Is tax deducted from dividends before I get them?
No. UK dividends are paid gross. You report them through your tax code (up to £10,000) or Self Assessment. Foreign dividends usually arrive with foreign withholding tax already taken off.
Do dividends inside an ISA count towards the £500?
No. Dividends inside a Stocks and Shares ISA are tax-free and do not count towards the allowance or need reporting.
Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-07.
Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.
