# Dividend tax for a client's shares outside an ISA: £500 allowance, then 10.75%, 35.75% or 39.35%, worked

> GOV.UK gives a £500 dividend allowance for 2026 to 2027 and rates of 10.75%, 35.75% and 39.35% above it. Three dividend levels worked for a client review.

- Page to cite: https://aeolookup.com/financial-advisers/dividend-allowance-500-tax-rates-10-75-35-75-39-35-client-shares-outside-isa-worked/
- Publisher: AEO Lookup (https://aeolookup.com/)
- Section: Financial advisers and mortgage brokers, Annual reviews and ongoing service
- Published 26 October 2026
- Key fact: Using the GOV.UK rates, £3,000 of dividends costs £268.75 for a basic rate client and £893.75 for a higher rate client; £8,000 costs £806.25 and £2,681.25; £20,000 costs £2,096.25 and £6,971.25. The £500 allowance is worth £53.75, £178.75 or £196.75 by band. At an assumed 4% yield (our assumption), £500 of dividends is about £12,500 of shares and £3,000 about £75,000.
- Sources: GOV.UK, "Tax on dividends" (https://www.gov.uk/tax-on-dividends). Read 26 October 2026. Rates for 6 April 2026 to 5 April 2027: dividend allowance £500 each year; dividends above it taxed at 10.75% basic rate, 35.75% higher rate, 39.35% additional rate; the page's example of £3,000 dividends and £29,570 wages gives total income £32,570, taxable income £20,000 after the £12,570 Personal Allowance, £500 of dividends untaxed and £2,500 taxed at 10.75%. Not read, so not used here, the band thresholds, how dividends stack on top of other income when a client crosses into the higher rate, dividends inside ISAs or pensions, and Scottish rules.

A paraplanner is preparing a review for a client who holds £60,000 of shares and funds outside an ISA. The adviser asks what the dividends will cost in tax. The rates are on one GOV.UK page, and the working is short enough to set out for any client.

## The rules on GOV.UK

The page "Tax on dividends" gives these figures for 6 April 2026 to 5 April 2027:

| Tax band | Tax on dividends above the allowance |
|---|---|
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |

It also says: "You also get a dividend allowance of £500 each year." The first £500 of dividends is not taxed. Only the part above it is.

## The page's own example, checked

The page has someone with £3,000 of dividends and £29,570 of wages. Total income is £29,570 + £3,000 = £32,570. After the £12,570 Personal Allowance, taxable income is £20,000, which sits in the basic rate band.

- Wages: £29,570 - £12,570 = £17,000, taxed at 20%, which is £3,400.
- Dividends: £500 untaxed, and £3,000 - £500 = £2,500 taxed at 10.75%, which is £268.75.

The £17,000 and £3,000 add to the £20,000 taxable income, so the example agrees with itself.

## Tax on three dividend levels

The method is: dividends minus £500, times the rate. This table assumes all of the taxable dividends fall in one band, so a client who crosses from basic into higher rate part-way through needs the band thresholds, which I did not read.

| Dividends | Above the £500 | Basic rate at 10.75% | Higher rate at 35.75% |
|---|---|---|---|
| £3,000 | £2,500 | £268.75 | £893.75 |
| £8,000 | £7,500 | £806.25 | £2,681.25 |
| £20,000 | £19,500 | £2,096.25 | £6,971.25 |

Checks on the arithmetic:

- £2,500 x 0.1075 = £250 + £18.75 = £268.75, and £2,500 x 0.3575 = £875 + £18.75 = £893.75.
- £7,500 x 0.1075 = £750 + £56.25 = £806.25, and £7,500 x 0.3575 = £2,625 + £56.25 = £2,681.25.
- £19,500 x 0.1075 = £1,950 + £146.25 = £2,096.25, and £19,500 x 0.3575 = £6,825 + £146.25 = £6,971.25.

On £3,000 of dividends a higher rate client pays £893.75 - £268.75 = £625 more than a basic rate client, which is £2,500 x 25 percentage points. The band matters more than the amount.

## What the allowance is worth

| Band | £500 x rate |
|---|---|
| Basic rate | £53.75 |
| Higher rate | £178.75 |
| Additional rate | £196.75 |

So the allowance saves at most £196.75 a year. It is a small number, and worth showing the adviser next to the larger figures above.

## How much stock is that?

The page gives no yields. For illustration we assume a 4% yield. This is our assumption, so replace it with the client's actual dividend figures from their statements.

- £500 / 0.04 = £12,500 of shares before dividends pass the allowance.
- £3,000 / 0.04 = £75,000 of shares to produce the page's £3,000 example.

Check: £12,500 x 4% = £500 and £75,000 x 4% = £3,000. The client with £60,000 at 4% receives £2,400 of dividends, which is £1,900 above the allowance. At the basic rate that is £1,900 x 0.1075 = £204.25, and at the higher rate £1,900 x 0.3575 = £679.25.

## What to put on the review note

- **Which band, this year.** The rate follows the band, so a client whose income rises into the higher rate pays more than three times as much on the same dividends: 35.75 / 10.75 = 3.33.
- **Actual dividends received.** Take the figure from the tax vouchers or platform statements, not a yield estimate. The adviser decides what, if anything, to move.
- **Where the shares sit.** Whether holdings belong in an ISA or a pension is the adviser's decision. For the cash side of that conversation see the [Personal Savings Allowance guide](https://aeolookup.com/financial-advisers/personal-savings-allowance-1000-500-starting-rate-5000-client-cash-interest-tax-worked/), and for gains on the same holdings see the [Capital Gains Tax allowance guide](https://aeolookup.com/financial-advisers/capital-gains-tax-allowance-3000-18-24-percent-client-gain-spread-years-worked/).
- **Other income thresholds.** Dividends count as income, so they can feed the [Child Benefit charge](https://aeolookup.com/financial-advisers/high-income-child-benefit-charge-60000-80000-1-percent-per-200-client-review-worked/) and the [Personal Allowance taper](https://aeolookup.com/financial-advisers/personal-allowance-taper-100000-60-percent-tax-band-125140-client-review-worked/). I did not read how GOV.UK treats dividends for those, so check before you rely on it.

For the wider review file, see the [annual review checklist](https://aeolookup.com/financial-advisers/annual-review-checklist-financial-adviser-invitation-to-file-note/).

Overlyft ![](https://aeolookup.com/img/d/ours-badge.png) builds AI staff who join your advice team and read each client's holdings and tax vouchers before the review, total the dividends against the £500 allowance, and prepare the one-page tax comparison for the adviser to approve.

This is general information, not financial advice. Check GOV.UK and the client's circumstances before you advise.

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General information for UK small firms, not legal, tax or financial advice.