What is the dividend allowance?

• A. £1,000
• B. £500
• C. £0
• D. £750

Answer: (B)

The dividend allowance is the amount of dividend income you can receive in a tax year without paying any tax on it. It is deducted from your dividend income before applying dividend tax rates.

For the year in question, the allowance is £500. This means the first £500 of any dividends you receive are tax-free, and only the excess above £500 is taxed at the applicable dividend tax rate (depending on your income tax band).

So if you receive £1,000 in dividends, £500 is tax-free and £500 would be taxed at the appropriate rate. The other options don’t fit because the current annual allowance is £500 for this scenario.