Dividend tax is the personal income tax you pay on dividends drawn from a UK limited company. For 2026/27 the dividend allowance is £500 and the rates are 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% in the additional-rate band. Both the basic and higher rates went up by two percentage points from April 2026. This calculator works out exactly what dividend tax you owe on a given dividend amount, given the rest of your taxable income, and shows the breakdown across the three bands.
How dividend tax works in 2026/27
Dividends are taxed after all your other taxable income, sitting on top of the stack. Your personal allowance (£12,570) covers the first slice of total income. The basic-rate band runs to £50,270 of total income. The higher-rate band runs to £125,140. Above £125,140 is the additional rate.
The dividend allowance gives you the first £500 of dividend income tax-free. Above that, dividends are taxed at the rate corresponding to the band they fall into:
| Band | Total income range | Dividend tax rate 2026/27 |
|---|---|---|
| Basic rate | £12,571 - £50,270 | 10.75% |
| Higher rate | £50,271 - £125,140 | 35.75% |
| Additional rate | £125,141+ | 39.35% |
The personal allowance can be set against dividends if you have no other income, so a director with no salary at all could take up to £12,570 + £500 = £13,070 of dividends with no tax. With a £12,570 salary already absorbing the personal allowance, the £500 dividend allowance is the only tax-free dividend slice you get.
Worked example: £40,000 dividend on a £12,570 salary
A director takes a £12,570 salary and a £40,000 dividend in 2026/27.
The salary uses the personal allowance entirely; no income tax, no employee NI. The dividend stacks on top:
- First £500: covered by the dividend allowance. Tax £0.
- Next £37,200: fills the rest of the basic-rate band (£50,270 − £12,570 − £500 = £37,200). Tax at 10.75% = £3,999.
- Remaining £2,300: in the higher-rate band. Tax at 35.75% = £822.
Total dividend tax: £4,821. Net after dividend tax: £35,179. Combined household take-home (salary + net dividend): £47,749.
Why the dividend allowance shrank
The dividend allowance was introduced at £5,000 in 2016/17. It was cut to £2,000 in 2018/19, to £1,000 in 2023/24 and to £500 in 2024/25. The Treasury rationale has been to align dividend taxation more closely with employment income, with the dividend allowance functioning as a small de minimis rather than a meaningful planning tool.
For most limited company directors, this means the dividend allowance is now mostly a rounding figure. The substantive planning lever is keeping total income inside the basic-rate band so dividends are taxed at 10.75% rather than 35.75%. This is one of the reasons many director couples place shares in joint names , both spouses get a personal allowance and a basic-rate band, doubling the most efficient extraction window.
How to pay dividend tax
If your only dividend income is below £10,000 and you don’t already file Self Assessment, HMRC can adjust your tax code to collect the dividend tax through PAYE on your salary. Above £10,000, or if you already file Self Assessment for any other reason, you declare dividends on your Self Assessment return. The tax is payable by the same 31 January deadline as your other Self Assessment liabilities. Dividends are not subject to National Insurance, which is the original reason they have always been more efficient than additional salary for limited company directors.
Key takeaways
- Dividend tax rates increased from 6 April 2026: basic rate 10.75% (was 8.75%), higher rate 35.75% (was 33.75%), additional rate 39.35% (unchanged).
- The dividend allowance is £500 for 2026/27 and is expected to remain frozen.
- Dividends sit on top of your other income for tax purposes, so the band they fall into depends on your salary and any other taxable income.
- Couples can multiply efficient extraction by holding shares jointly and each using a separate personal allowance and basic-rate band.
- Dividend tax has no NI element, but the company has already paid corporation tax on the profit, so the effective combined rate is higher than the dividend tax rate alone.
Frequently asked questions
Do I pay National Insurance on dividends? No. Dividends are not subject to employee or employer National Insurance. This is the principal reason they have historically been more tax-efficient than additional salary for limited company directors, even though the gap has narrowed since dividend rates rose.
Can I take dividends without taking any salary? Yes. A director who takes no salary uses the personal allowance against dividends instead, so the first £12,570 is tax-free, plus the £500 dividend allowance. Most directors take some salary anyway , to preserve their state pension qualifying year and for mortgage application purposes.
When do I have to pay the dividend tax? Dividend tax for the 2026/27 tax year is due by 31 January 2028, on the same Self Assessment return that covers your other income for the year. You may also need to make payments on account towards the next year’s bill at the same time.
Are dividends from ISA shares taxed? No. Dividends paid on shares held inside an ISA are tax-free and do not count towards your dividend allowance. This makes ISAs a useful holding structure for personal share portfolios alongside (not instead of) a limited company.