The UK dividend allowance is £500 for 2026/27, the same as in 2025/26. What changed on 6 April 2026 is the tax rate on dividends above the allowance: 10.75% for basic rate taxpayers (up from 8.75%) and 35.75% for higher rate taxpayers (up from 33.75%). The additional rate stays at 39.35%. Anyone searching for the 2025/26 dividend allowance gets the same £500 answer, but a 2025/26 tax bill is worked out at the old rates.
Dividend allowance and dividend tax rates
| 2026/27 | 2025/26 | |
|---|---|---|
| Dividend allowance | £500 | £500 |
| Basic rate band (dividend ordinary rate) | 10.75% | 8.75% |
| Higher rate band (dividend upper rate) | 35.75% | 33.75% |
| Additional rate band (dividend additional rate) | 39.35% | 39.35% |
The rates are set by section 8 of the Income Tax Act 2007. Finance Act 2026 substituted the ordinary and upper rates for 2026/27 onwards. The allowance has been £500 since 2024/25; it was £1,000 in 2023/24. HMRC publishes both years side by side on its rates and allowances page.
The dividend rates apply across the UK. Scottish taxpayers pay Scottish rates on earnings and pensions, but they pay the same tax on dividends as the rest of the UK.
How the allowance actually works
The word "allowance" is misleading. In law, section 13A of the Income Tax Act 2007 does not take the first £500 out of your income. It charges that £500 at the dividend nil rate of 0% instead of the rate that would otherwise apply. This has two practical consequences:
- The £500 still uses up your bands. HMRC's guidance confirms that dividends within the allowance still count towards your basic or higher rate band. £500 of dividends sitting at the top of the basic rate band can push other dividends into the higher rate band;
- The Personal Allowance comes first. Dividends covered by unused Personal Allowance (£12,570, tapered away by £1 for every £2 of adjusted net income over £100,000) are tax-free before the £500 is reached. Someone with no other income can receive £13,070 of dividends tax-free in 2026/27.
Dividends from shares held in an ISA are tax-free and do not use the allowance at all.
To decide which rate applies, dividends are treated as the top slice of income. They come after earnings, pensions, rental profit and savings interest. A dividend can be taxed at 10.75% for one person and 35.75% for another on the same amount, depending entirely on what else they earn.
Worked example: director's salary and dividends
Illustration only, using 2026/27 rates for a taxpayer in England with no other income. A director takes a salary of £12,570 and dividends of £40,000. The salary uses the Personal Allowance, so all £40,000 of dividends is taxable:
- Dividend nil rate. £500 at 0% = £0;
- Remaining basic rate band. £37,200 at 10.75% = £3,999.00;
- Higher rate band. £2,300 at 35.75% = £822.25;
- Total dividend tax. £4,821.25.
The same income at 2025/26 rates would have produced £4,031.25 (£3,255.00 plus £776.25). The rate rise alone adds £790 a year for this profile, before any change in the company's corporation tax. Owner-managers who set their salary and dividend mix before April 2026 should rerun the numbers. The higher dividend upper rate also feeds into section 455 tax on overdrawn director's loan accounts, which follows that rate. See our guide to section 455 tax on director's loans.
Do you need to tell HMRC?
HMRC's reporting rules depend on how much you received:
- Within your allowances. If your dividends are covered by the £500 allowance, and any unused Personal Allowance, you do not need to tell HMRC;
- Up to £10,000. If you already file a Self Assessment return, the dividends go on it. If you do not, tell HMRC after 5 April and before 5 October. You can ask HMRC to adjust your tax code so the tax is collected through your salary or pension, or contact the helpline;
- Over £10,000. You must file a Self Assessment return. If you are not already in the system, register by 5 October after the end of the tax year.
For 2025/26 dividends, the online return and any tax due must reach HMRC by 31 January 2027. Most director-shareholders already file returns, so the practical risk is the small shareholder who receives a sudden special dividend or a large payout on a takeover and does not realise it has to be reported.
Filing a 2025/26 return now
Many people searching for the 2025/26 dividend allowance are completing that year's return now. Dividends received between 6 April 2025 and 5 April 2026 get the £500 allowance and are taxed at the 2025/26 rates: 8.75%, 33.75% and 39.35%. Do not apply the new 10.75% and 35.75% rates to them. The paper return deadline is 31 October 2026 and the online deadline is 31 January 2027. The 5 October 2026 deadline for registering has now passed. If you register late, HMRC will give you a filing deadline 3 months from the date of its notice, but the tax must still be paid by 31 January 2027.
Common mistakes with the dividend allowance
- Treating it as per company. The £500 is per person per tax year, across all your shareholdings;
- Using last year's rates. Calculators and payroll-style spreadsheets written before April 2026 still show 8.75% and 33.75%. For 2026/27 dividends those figures understate the tax;
- Assuming the £500 is free of band effects. As above, it uses up band space even though no tax is charged on it;
- Forgetting the spouse. Each spouse or civil partner has their own £500 allowance and their own bands. Genuine share ownership by a lower-earning spouse can change the tax rate on dividends, but the settlements rules mean it has to be set up properly, not just on paper;
- Ignoring payments on account. A large dividend can create a Self Assessment balance that triggers payments on account for the following year.
Acumon's income tax return team handles dividend reporting for directors and investors, and our tax planning advisers can rerun your salary and dividend mix at the 2026/27 rates before your next dividend is declared.