Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
The number of people that will pay tax on their dividends across all income brackets has doubled over the past four tax years as the dividend allowance shrinks.
While the allowance used to be £2,000, it has now fallen to just £500, with the rest categorised as income. Now, 3.7 million people are paying tax on their dividends, and it’s not just limited to high earners. Three times as many people in the basic-rate bracket are now paying up compared to the 2021-2022 tax year.
Most basic-rate earners who need to pay tax on their dividends face a relatively small bill. The average bill will be just £382 for the 2025/26 tax year, but this will still mean they need to report these dividends to HMRC. For higher-rate taxpayers, the average bill rises to £6,202, while additional rate taxpayers cough up £28,879 on average.
Average dividend tax bill per income tax band – 2025/26
| Income rate band | Amount of tax due | Number of taxpayers | Average bill |
| Savers rate | £401,000,000 | 368,000 | £1,090 |
| Basic-rate | £673,000,000 | 1,760,000 | £382 |
| Higher-rate | £7,380,000,000 | 1,190,000 | £6,202 |
| Additional rate | £10,159,000,000 | 340,000 | £29,879 |
| Total | £18,613,000,000 | 3,658,000 | £5,088 |
Source: HMRC/AJ Bell. Figures for 2025/26 based on estimates from HMRC
Do I need to worry about dividend tax?
If you don’t own individual shares, dividend tax may not be front of mind. But invest through a fund that owns shares in companies which pay dividends, even if those dividends aren’t paid out to you, you can owe tax. However, if you have your investments in a pension or ISA, this money will be protected from the tax.
If you own shares, the process of owing dividends is relatively simple. When you are paid out dividends, even if you choose to reinvest them, this counts as part of your dividend allowance. If you are paid out more than £500 in dividends in the tax year, then any other money you make from dividends will be taxable.
If you own a fund outside a tax-protected wrapper like an ISA or a pension, you also will need to watch out for your dividend allowance. Funds are typically labelled as either accumulation (Acc) or income (Inc). If you invest through an income fund, the dividends you make from your investment will be transferred to your account, which will allow you to see how much you’ve made in a tax year from dividends.
But if you own an accumulation fund, the dividends that you make from the investment will be automatically reinvested in the fund. Even though the money is automatically reinvested, it is still classified as income by HMRC, and will count towards your dividend allowance. You can see how much this is by looking at the annual tax statement sent from your investment platform.
How do I notify HMRC?
Remember, if you have your investments in an ISA or a pension, you will not be subject to taxes on dividends, and don’t need to do any extra reporting.
But, if your investments are outside these wrappers, you’ve exceeded the dividend allowance of £500, and have also used up your personal allowance of £12,570, you will need to report your dividend income to HMRC.
If you file a self-assessment tax return, you will need to report your dividend income when you file. If you typically don’t file a self-assessment tax return, and your dividend income is below £10,000, you can contact HMRC so they can update your tax code. This must between the end of the tax year and 5 October. If you make over £10,000 through dividend income, you’ll need to file a self assessment tax return, even if you don’t usually send one.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
