Dividend Tax UK 2026/27: Rates, Allowance & How to Pay Less
📣 Rates up for 2026/27: following the Autumn Budget 2025, dividend tax rose by 2 percentage points from 6 April 2026 — the basic rate is now 10.75% and the higher rate 35.75%. The full figures are below.
- The dividend allowance is £500 for 2026/27 — your first £500 of dividends is tax-free.
- Above that, dividends are taxed at 10.75% (basic), 35.75% (higher) and 39.35% (additional) — the basic and higher rates each rose 2 points from 6 April 2026.
- Dividends are the top slice of your income, so your other income decides which rate applies.
- No National Insurance is due on dividends — a key reason directors use them.
- Owe tax on over £10,000 of dividends? You must file a Self Assessment return.
- Want your dividends structured tax-efficiently? Our limited company service can help.
Dividends are one of the most tax-efficient ways to take money out of a limited company — but they became a little more expensive in 2026. If you're a company director or an investor receiving dividends, this guide sets out the 2026/27 rates, how the allowance works, a worked example so you can see the maths, and the legitimate ways to keep your dividend tax bill down.
What is dividend tax?
Dividend tax is the Income Tax you pay on dividends — the payments a company makes to its shareholders out of its profits after Corporation Tax. If you own shares, whether in your own limited company or in listed companies, the dividends you receive above your allowances are taxable.
The crucial feature is that dividends carry no National Insurance, unlike salary. That's why many company directors pay themselves a small salary topped up with dividends — the combination can be markedly more efficient than salary alone.
What are the dividend tax rates for 2026/27?
The rate you pay depends on the Income Tax band your dividends fall into. Here are the rates for the 2026/27 tax year:
| Band | Dividend rate 2026/27 | Was (2025/26) |
|---|---|---|
| Basic rate | 10.75% | 8.75% |
| Higher rate | 35.75% | 33.75% |
| Additional rate | 39.35% | 39.35% (unchanged) |
The basic and higher rates each rose by 2 percentage points from 6 April 2026, announced in the Autumn Budget 2025; the additional rate was left unchanged. These same rates apply across the whole UK — Scottish taxpayers follow Scottish bands for other income, but pay these UK-wide rates on dividends.
What is the dividend allowance?
Every taxpayer gets a dividend allowance of £500 for 2026/27, regardless of their tax band. The first £500 of dividends you receive in the year is taxed at 0%.
One subtlety catches people out: the allowance is a nil-rate band, not a true exemption. The £500 still uses up part of the tax band it sits in — it doesn't give you an extra £500 of basic-rate room. Dividends that fall within your unused personal allowance (£12,570) are separate and also tax-free, so someone with little other income can receive a fair amount of dividends before any tax bites.
How is dividend tax calculated?
Dividends are treated as the top slice of your income — they're taxed after your salary and other income, so your other income determines which band the dividends land in. Here's a worked example:
Worked example: £30,000 salary + £10,000 dividends
- Your £30,000 salary uses your personal allowance and part of the basic-rate band, leaving room up to £50,270.
- The first £500 of dividends is covered by the dividend allowance — £0 tax.
- The remaining £9,500 of dividends sits within the basic-rate band, taxed at 10.75%.
- Dividend tax due: £9,500 × 10.75% = £1,021.25.
If those dividends had pushed your total income past £50,270, the portion above the threshold would be taxed at the higher 35.75% rate instead. To run your own numbers quickly, use our dividend tax calculator, which is set to the 2026/27 rates.
How do you pay dividend tax?
How you pay depends on how much you receive:
| Dividends in the year | What you do |
|---|---|
| Up to £500 | Nothing — covered by the allowance |
| £501 – £10,000 | Tell HMRC — they can collect it through your tax code, or you report it via Self Assessment |
| Over £10,000 | You must register for and file a Self Assessment tax return |
If you already complete a Self Assessment return — as most company directors do — you simply include your dividends there and pay any tax by the 31 January deadline.
How can you legally pay less dividend tax?
With rates up for 2026/27, planning matters more than it did. These are all legitimate ways to reduce a dividend tax bill:
- Use the £500 allowance every year — it doesn't carry over, so an unused allowance is lost.
- Hold shares in a Stocks and Shares ISA — dividends inside an ISA are completely tax-free, with no dividend tax at all.
- Use both spouses' allowances and bands — transferring shares to a lower-earning spouse can use their allowance and lower-rate band (it must be a genuine gift).
- Make pension contributions — these extend your basic-rate band, so more of your dividends can be taxed at 10.75% rather than 35.75%.
- Time your dividends across tax years — spreading payments over two years can keep you in a lower band and use two years' allowances.
The right mix depends on your full income picture, so it's worth getting these checked before you declare a large dividend rather than after.
Should directors take salary or dividends?
For most owner-directors, the answer is a mix of both. A modest salary — often set around the National Insurance threshold — keeps your State Pension record intact and is a deductible expense for the company, while dividends top up your income without incurring National Insurance.
The dividend rate rise has narrowed the gap slightly, but the salary-plus-dividends approach is still typically more efficient than salary alone. The exact split depends on your profits, other income and pension plans — our limited company accounting service works out the optimal blend for your situation and handles the paperwork.
Frequently asked questions
What are the UK dividend tax rates for 2026/27?
Above the £500 dividend allowance, dividends are taxed at 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% in the additional-rate band. The basic and higher rates each rose by 2 percentage points from 6 April 2026.
How much can I earn in dividends before paying tax?
The dividend allowance is £500, so the first £500 of dividends is tax-free. On top of that, dividends covered by any unused personal allowance (£12,570) are also tax-free, so someone with little other income can receive more before tax applies.
Do I pay National Insurance on dividends?
No. Dividends are not subject to National Insurance, which is one of the main reasons company directors take part of their income as dividends rather than salary.
Do I need to file a tax return for dividends?
If your dividends are over £10,000 you must file a Self Assessment return. Between £501 and £10,000 you can tell HMRC and pay through your tax code instead. Up to £500 there is nothing to report.
How can I reduce my dividend tax?
Use your £500 allowance each year, hold shares in an ISA where dividends are tax-free, share holdings with a lower-earning spouse, make pension contributions to extend your basic-rate band, and time dividends across tax years. Take advice before declaring a large dividend.
We'll set the most efficient salary-and-dividend split, keep your paperwork compliant, and file your Self Assessment so nothing's missed — for a fixed fee. Get a quote or message us today.
Related: our dividend tax calculator and limited company accounting service. Official guidance is on the gov.uk tax on dividends pages.