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Definition
The dividend allowance is the amount of dividend income an individual can receive each tax year before dividend tax applies. Dividends within the allowance are tax-free; those above it are taxed at the dividend rates.
In plain terms
It is a slice of dividend income you can take tax-free each year. Beyond it, dividends are taxed — still at lower rates than salary, and with no National Insurance.
Why it matters for your company
The allowance has been reduced over recent years, making dividend planning more important for director-shareholders. Knowing where the allowance sits helps you structure how you pay yourself and budget the personal tax via Self Assessment.
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