Dividend tax for 2026/27 is charged at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The first £500 of dividends each year is covered by the dividend allowance. The basic and higher rates each rose by 2 percentage points on 6 April 2026, from 8.75% and 33.75%; the additional rate did not change. Dividends that fall within your unused personal allowance are not taxed at all, and dividends inside an ISA are tax-free. Below are the bands, how dividends sit on top of other income, a worked example, and how the tax is reported and paid.
Dividend tax rates and bands for 2026/27
| Band (taxable income, England, Wales and NI bands) | 2026/27 dividend rate | 2025/26 dividend rate |
|---|---|---|
| Within personal allowance (up to £12,570) | 0% | 0% |
| Dividend allowance (first £500 of dividends) | 0% | 0% |
| Basic rate (£12,571 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 new rates are in section 8 of the Income Tax Act 2007, as amended by the Finance Act 2026 for 2026/27 onwards. Dividend rates are reserved to Westminster, so they apply UK-wide. A Scottish taxpayer pays dividend tax at these rates, using UK bands, even though their salary is taxed under Scottish bands. The personal allowance is withdrawn by £1 for every £2 of adjusted net income above £100,000, and dividends count towards that income. A large dividend can therefore remove the allowance just as salary would.
How dividends are taxed: the stacking order
Dividends are treated as the top slice of your income. To find the band a dividend falls in, HMRC adds your total dividend income to your other income. In practice:
- Non-savings income goes first. Salary, pension, self-employed profit and rent use the personal allowance and then the bands from the bottom up;
- Savings interest comes next, with its own allowances (see our guide to the personal savings allowance);
- Dividends sit on top. Any personal allowance still unused shelters dividends at 0%. The next £500 is taxed at 0% under the dividend allowance. The rest is taxed at the dividend rate for whichever band it lands in.
The allowance is not an exemption. The £500 still uses up part of your basic or higher rate band, which can push later dividends into a higher band. It is also only £500: the allowance was £1,000 in 2023/24 and has been £500 since 2024/25.
HMRC's own example: someone with wages of £29,570 and dividends of £3,000 in 2026/27 has total income of £32,570. After the £12,570 personal allowance, all of it sits in the basic rate band. The wages are taxed at 20%, the first £500 of dividends at 0%, and the remaining £2,500 at 10.75%. That gives £268.75 of dividend tax (our arithmetic).
Worked example: a director taking salary and dividends
Illustration only. It assumes England, the standard personal allowance and no other income. A company director takes a salary of £12,570 and dividends of £50,000 in 2026/27.
- Personal allowance. The salary uses all £12,570, so there is no income tax on the salary;
- Basic rate band. The basic rate band is £37,700 wide (taxable income from £12,571 to £50,270). The first £500 of dividends is taxed at 0%, and the next £37,200 at 10.75%, which is £3,999.00;
- Higher rate band. The remaining £12,300 of dividends is taxed at 35.75%, which is £4,397.25;
- Total dividend tax: £8,396.25. The same figures in 2025/26 would have produced £7,406.25. The April 2026 rate rise costs this director £990 a year.
Dividends are not liable to National Insurance, and that is still the core of the salary-and-dividend model. But the gap has narrowed. The company has already paid corporation tax on the profit being distributed, at 19% (small profits rate) to 25% (main rate). The combined cost of profit extracted as dividends now needs checking against salary, pension contributions and retaining profit in the company, rather than assumed.
Company-side rules that catch people out
- Distributable profits. Under section 830 of the Companies Act 2006, a company may only pay a dividend out of profits available for the purpose: accumulated realised profits less accumulated realised losses. A shareholder who knows, or has reasonable grounds to believe, that a dividend was paid in breach of these rules is liable to repay it (section 847);
- Paperwork. Keep board minutes and a dividend voucher for each declaration, as evidence of what was declared, when and to whom;
- Overdrawn director's loan accounts. Drawings taken in anticipation of a dividend that is never properly declared become a director's loan. If the loan is not repaid within nine months of the end of the company's accounting period, it triggers a corporation tax charge on the company. See our guide to section 455 tax.
Reporting and paying dividend tax
- Within the allowances. If your dividends fall within your unused personal allowance and the £500 dividend allowance, there is nothing to report;
- Up to £10,000 of dividends. If you do not already file a tax return, tell HMRC after the tax year ends and before 5 October. You can ask HMRC to adjust your tax code so the tax is collected through your wages or pension, or contact the helpline;
- Over £10,000 of dividends. You must complete a Self Assessment tax return. If you are not already registered, you must tell HMRC by 5 October after the end of the tax year, by registering for Self Assessment.
If you already file returns, dividends go on the return whatever the amount. The tax is then due on 31 January after the tax year, and it feeds into any payments on account for the following year. For a shareholder taking dividends for the first time, that is the cash-flow shock. The first January can bring the full year's dividend tax plus a first payment on account for the next year.
Reducing dividend tax legitimately
The levers are well established. Holding investments in an ISA keeps dividends outside tax altogether. Spouses or civil partners who each own shares use two dividend allowances and two sets of bands, provided the shares are genuinely theirs. Company pension contributions can extract value without any dividend tax. Timing dividends across 5 April can keep income below £50,270 or £100,000 in each year. Each of these has conditions, and the settlements legislation can catch income-shifting arrangements that are not outright gifts. They are worth taking advice on before the dividend is declared, not after.
Acumon advises owner-managers on extraction strategy through our tax planning service, and individual investors through private client tax. With the 2026/27 rates now in force, it is worth reviewing your dividend pattern before the year end.