How much dividend can I take from my company tax free?
Answered 11 March 2026
I now have sufficient information to answer this question comprehensively. Here is the answer:
How Much Dividend Can You Take Tax-Free?
The answer depends on the tax year in question. The "tax-free" amount is technically a dividend nil rate (commonly called the "dividend allowance") — a band of dividend income charged at 0% rather than the normal dividend rates.
What the law says
The dividend nil rate is set out in section 13A of the Income Tax Act 2007 (ITA 2007). It charges income tax at 0% (the "dividend nil rate") on a specified amount of an individual's dividend income, rather than at the dividend ordinary, upper, or additional rates.
The allowance has been reduced several times by Parliament:
| Tax Year | Dividend Nil Rate Allowance |
|---|---|
| 2016–17 to 2017–18 | £5,000 |
| 2018–19 to 2022–23 | £2,000 |
| 2023–24 | £1,000 |
| 2024–25 onwards | £500 |
The reductions were legislated as follows:
- The allowance was originally set at £5,000 when section 13A was introduced.
- It was reduced to £2,000 for 2018–19 and subsequent years.
- It was then reduced to £1,000 for 2023–24, and further to £500 for 2024–25 and subsequent tax years.
The current legislation (s.13A as amended) applies the £500 nil rate first to dividend income that would otherwise be taxed at the ordinary rate, then the upper rate, then the additional rate.
HMRC guidance / practice
HMRC confirms that the dividend allowance was introduced from April 2016, replacing the old dividend tax credit system, and that individuals who earn less than the allowance in dividends pay no tax on them.
HMRC guidance also confirms that the allowance was reduced to £2,000 from 6 April 2018, and HMRC's worked examples for 2024–25 apply the £500 dividend allowance at 0% before taxing the remainder at the relevant dividend rate.
Important caveats
- The allowance is not truly "tax-free" in isolation — it is a nil-rate band. Dividends within the allowance still count towards your total income and can affect which tax band your other income falls into.
- Your personal allowance (£12,570 for 2024–25) may also shelter some dividend income if you have no other income — meaning the total amount you could receive without paying income tax could be higher than £500.
- Dividend tax rates above the allowance are 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).
- ISA dividends are entirely outside this calculation and remain tax-free regardless.
Citation sources
PART 1 Direct taxes Income tax: investments Dividend nil rate for tax year 2018-19 etc 8 1 In section 13A of ITA 2007 (income charged at the dividend nil rate), for “£5000”, in each place, substitute “ £2000 ” . 2 The amendments made by this section have effect for the tax year 2018-19 and subsequent tax years.
From April 2016, the Dividend Tax Credit will be abolished and a new £5,000 Tax Free Allowance for Dividend income will be introduced. The new rates of tax on Dividend income above the allowance will be – - 7.5% for dividends taxed in the Basic Rate - 32.5% for dividends taxed in the Higher Rate - 38.1% for dividends taxed in the Additional Rate An allowance will be introduced so that everyone can receive up to £5,000 of Dividend income, on top of any dividends rece
ed under this Rule and Rule 1C are the only amounts charged at the dividend nil rate. Rule 2C: If the total of D and U is less than £500 but more than nil, U is charged at the dividend nil rate (rather than the dividend upper rate). Step 3 If the total of D and U is less than £500 , identify the amount (“A”) of the individual's income which would, ignoring this section, be charged at the dividend additional rate. Rule 3A: If the total of D, U and A is more than £500 , the first £X of A is charge
Part 2 Basic provisions Chapter 2 Rates at which income tax is charged Income charged at particular rates Income charged at the dividend nil rate 13A 1 Subsection (2) applies if, ignoring this section, at least some of an individual's income would be charged to income tax at the dividend ordinary rate, the dividend upper rate or the dividend additional rate. 2 Income tax is charged at the dividend nil rate (rather than the dividend ordinary rate, dividend upper rate or dividend additional rate)
PART 1 Income tax Rate structure Rates of tax on dividend income, and abolition of dividend tax credits etc 5 1 ITA 2007 is amended in accordance with subsections (2) to (8). 2 In section 6(3)(b) (other rates: dividends), before “dividend ordinary rate,” insert “ dividend nil rate, ” . 3 In section 8 (dividend ordinary, upper and additional rates)— a in the heading, after “The” insert “ dividend nil rate, ” , b before subsection (1) insert— A1 The dividend nil rate is 0%. , c in subsection (1) (
From April 2016, the Dividend Tax Credit was abolished and a new £5,000 Tax Free Allowance for Dividend income was introduced. This dividend allowance was reduced to £2000 from 6 April 2018. The new rates of tax on Dividend income above the allowance will be: 7.5% for dividends taxed in the Basic Rate 32.5% for dividends taxed in the Higher Rate 38.1% for dividends taxed in the Additional Rate If an individual earns less than £2000 (£5000 for 2016 to 2017 and 2017 to 2018) of Dividends they will
The example is when the income is received after 6 April 2024 when the standard rate band is no longer applicable. The trustees receive the following income in 2024-25: Income Amount Rent £20,000 Bank Interest £5,000 UK dividends £10,000 TQTI (the trustees tax liability before making a claim for special treatment) Tax rates Non-savings income Savings Dividend Total Income £20,000 £5,000 £10,000 - Tax at trust rate 45% £20,000 £5,000 - - Tax at Trust dividend rate 39.35% - - £10,000 - Tax chargea
Income tax Dividend nil rate 7 1 In section 13A(2) of the Income Tax Act 2007 (income charged at the dividend nil rate), for “£2000”, in each place, substitute “£1,000” . 2 The amendments made by subsection (1) have effect for the tax year 2023-24. 3 In section 13A(2) of that Act (as amended by subsection (1) ), for “£1,000”, in each place, substitute “£500” . 4 The amendments made by subsection (3) have effect for the tax year 2024-25 and subsequent tax years.