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CGT Allowance Slashed to £3,000 — More People Are Being Dragged Into Paying Capital Gains Tax
6 min read
In April 2018, the Dividend Allowance was £5,000. Today, it's £500. That dramatic reduction means millions of investors who previously paid no tax on their dividends now face bills ranging from £87.50 to £253 for every £1,000 of dividends above the threshold.
2026 Dividend Tax Rates
| Tax Band | Dividend Tax Rate |
|---|---|
| Up to £500 (all taxpayers) | 0% |
| £500+ (Basic Rate taxpayer) | 8.75% |
| £500+ (Higher Rate taxpayer) | 33.75% |
| £500+ (Additional Rate taxpayer) | 39.35% |
Who Is Now Caught?
Before the allowance cuts, most private investors with FTSE 100 dividend portfolios could hold substantial positions before owing dividend tax. Today, a portfolio of just £12,500 in a high-yield stock (yielding 4%) produces £500 in dividends — the entire allowance in one stock. Most diversified investors with anything beyond a tiny portfolio face a dividend tax bill.
The ISA Solution
The most effective protection is moving dividend-producing assets inside a Stocks and Shares ISA. Dividends within an ISA are completely tax-free, regardless of size. The annual ISA allowance is £20,000 — prioritise holding your highest-yielding assets inside the ISA first.
Dividend Tax for Limited Company Directors
For company directors who extract profit as dividends (standard practice for tax efficiency), the £500 allowance is largely irrelevant at scale — but the rates matter. A director extracting £30,000 in dividends above the basic rate threshold would pay 33.75% on the higher rate portion.
Frequently Asked Questions
Do I need to declare dividend income to HMRC?
If your dividends exceed £500/year (the allowance), you must report them. PAYE workers do this through the HMRC Personal Tax Account "simple assessment" process or by registering for Self Assessment if dividends exceed £10,000 or total income exceeds £100,000.
Are dividend reinvestment plans (DRIPs) taxed?
Yes — even if dividends are automatically reinvested rather than paid as cash, they count as dividend income received and are taxable above the £500 allowance. Keep records of all DRIP reinvestments.
Calculate your dividend tax with our Dividend Tax Calculator.