Key takeaways
- The first £500 of dividends each year is tax-free under the Dividend Allowance.
- From 6 April 2026 dividends above the allowance are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate).
- Dividends are treated as the top slice of your income, so your salary and other income decide which rate applies.
- Dividends in ISAs and pensions are tax-free and do not use the allowance.
- Dividend tax over £10,000 must be reported through Self Assessment; below that you can ask HMRC to collect it through your tax code.
Dividends are payments a company makes to its shareholders out of profits that have already borne Corporation Tax. For the shareholder they are taxed under their own set of rates, which rose for 2026/27. This matters most to owner-directors who pay themselves through dividends, and to investors with shares held outside ISAs and pensions.
Dividend tax rates for 2026/27
| Band | Taxable income band | Dividend rate 2026/27 | 2025/26 for comparison |
|---|---|---|---|
| Dividend Allowance | First £500 of dividends | 0% | 0% |
| Basic rate | Up to £50,270 | 10.75% | 8.75% |
| Higher rate | £50,271 to £125,140 | 35.75% | 33.75% |
| Additional rate | Over £125,140 | 39.35% | 39.35% |
The basic and higher rates rose by 2 percentage points from 6 April 2026, announced in the Autumn Budget 2025. The additional rate did not change. The same dividend rates apply across the UK, including in Scotland.
How dividends are taxed alongside other income
Dividends sit on top of your other income. To work out the tax:
- Add up non-savings income (salary, pensions, self-employed and rental profits), then savings income, then dividends.
- Use your Personal Allowance against non-savings income first.
- The dividends fall into whichever bands are left after your other income.
- The first £500 of dividends is taxed at 0%, but it still uses up the band it falls in.
Example: director with a small salary
A company director takes a salary of £12,570 and dividends of £40,000 in 2026/27.
| Step | Amount | Tax |
|---|---|---|
| Salary covered by Personal Allowance | £12,570 | £0 |
| Dividend Allowance | £500 | £0 |
| Remaining dividends in basic rate band | £37,200 | £3,999 at 10.75% |
| Dividends above £50,270 | £2,300 | £822.25 at 35.75% |
| Total dividend tax | £4,821.25 |
The basic rate band is £37,700. The £500 allowance uses part of it, leaving £37,200 taxed at 10.75%. The remaining £2,300 falls into the higher rate band.
Example: higher rate employee with investments
An employee earning £65,000 receives £3,000 of dividends from shares held outside an ISA. The first £500 is covered by the allowance and the remaining £2,500 is taxed at 35.75%, giving dividend tax of £893.75.
Dividends and the £100,000 taper
Dividends count towards adjusted net income, so they can reduce your Personal Allowance. A director whose salary and dividends together exceed £100,000 loses £1 of allowance for every £2 over, creating an effective rate well above the headline dividend rate. Pension contributions are often the most efficient way to bring income back below £100,000; see adjusted net income.
Dividends that are tax-free
- dividends from shares held in an ISA, which do not need to be reported and do not use the allowance; see ISA tax benefits
- dividends on shares held in a pension
- dividends covered by the £500 allowance (although they still count when working out your tax band)
Reporting and paying dividend tax
| Your dividends in the tax year | What to do |
|---|---|
| Within the £500 allowance | Nothing |
| £500 to £10,000 | Tell HMRC by phone or online so it can adjust your tax code, or report on a Self Assessment return if you already file one |
| Over £10,000 | Register for and file a Self Assessment return |
Company directors who take dividends usually file Self Assessment anyway; see Self Assessment for company directors.
Salary or dividends?
For owner-directors, dividends avoid National Insurance, which is why many take a small salary and the rest as dividends. The rate increase has narrowed the gap, and employer NI at 15% on salary above £5,000 still makes a mix of low salary and dividends efficient for most single-director companies. Our salary vs dividends calculator compares the options for 2026/27, and the dividend tax calculator works out the tax on a given dividend.
Dividend tax rate history
| Tax year | Dividend Allowance | Basic | Higher | Additional |
|---|---|---|---|---|
| 2022/23 | £2,000 | 8.75% | 33.75% | 39.35% |
| 2023/24 | £1,000 | 8.75% | 33.75% | 39.35% |
| 2024/25 | £500 | 8.75% | 33.75% | 39.35% |
| 2025/26 | £500 | 8.75% | 33.75% | 39.35% |
| 2026/27 | £500 | 10.75% | 35.75% | 39.35% |
Frequently asked questions
How much tax do I pay on dividends in 2026/27?
Nothing on the first £500. Above that, 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band.
Did dividend tax go up in April 2026?
Yes. The basic and higher dividend rates rose by 2 percentage points from 6 April 2026. The additional rate stayed at 39.35%.
Does the £500 Dividend Allowance reduce my taxable income?
No. It taxes the first £500 of dividends at 0%, but those dividends still count towards your income when working out which band other dividends fall in.
Do I pay National Insurance on dividends?
No. Dividends are not earnings for National Insurance, which is one reason directors often take part of their income as dividends.
Are dividends from my ISA taxable?
No. Dividends from investments held in an ISA or a pension are tax-free and do not need to be reported.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.