Dividend Tax 2026/27: Allowance, Rates and How Much You'll Pay

If you own shares or take income from your own company, you need to understand dividend tax 2026/27 before you decide how much to take. For the 2026/27 tax year the Dividend Allowance stays at £500, but the dividend tax rates have risen, so many shareholders and company directors will pay more than before. This guide explains the allowance, the new rates, how the bands work and exactly how much tax you'll owe.

What is dividend tax?

Dividends are payments made to shareholders out of a company's profits after Corporation Tax. They are taxed differently from salary or savings interest, and they have their own set of tax rates. You don't pay National Insurance on dividends, which is one reason company directors often take part of their income this way.

Crucially, dividends are treated as the top slice of your income. That means they are taxed after your earnings and any savings interest, so the rate you pay depends on which Income Tax band the dividends fall into once everything else is stacked underneath them.

The Dividend Allowance for 2026/27

Every taxpayer gets a tax-free Dividend Allowance. For 2026/27 this is £500, taxed at 0%. The first £500 of dividend income you receive in the tax year is free of dividend tax, no matter which band your income falls into.

• The £500 allowance is available to everyone, regardless of your Income Tax band.
• It uses up part of whichever band the dividends sit in (it isn't extra on top of your bands).
• Dividends held inside an ISA are tax-free and don't count towards the allowance or your taxable income at all.
• If your only dividend income is £500 or less, you have no dividend tax to pay.

Dividend tax rates 2026/27

The dividend tax rates rose for 2026/27. The ordinary rate (for dividends in the basic-rate band) and the upper rate (for dividends in the higher-rate band) both increased by 2 percentage points, up from 8.75% and 33.75%. The additional rate is unchanged. The table below shows the rates that apply to dividends above your £500 allowance. You can confirm the current figures via Tax on dividends (GOV.UK).

Because dividends sit at the top of your income, a single dividend payment can be split across two bands. For example, dividends that take you over the higher-rate threshold are partly taxed at 10.75% and partly at 35.75%. You can work this out quickly with our dividend tax calculator.

Worked example: a basic-rate taxpayer

Suppose you are a basic-rate taxpayer and you receive £10,000 in dividends in 2026/27, and the whole amount stays within your basic-rate band once your other income is taken into account.

1. The first £500 is covered by the Dividend Allowance and taxed at 0%.
2. The remaining £9,500 is taxed at the ordinary rate of 10.75%.
3. £9,500 × 10.75% = £1,021.25 of dividend tax.

So on £10,000 of dividends, this basic-rate taxpayer pays £1,021.25. If some of those dividends had pushed into the higher-rate band, that portion would be taxed at 35.75% instead, increasing the bill. To see how dividends stack on top of your wages, try our income tax calculator.

Tip: Always work out your salary and other income first, then add dividends on top. The order matters, because the band your dividends land in decides the rate. Spreading dividends across two tax years, or sheltering shares in an ISA, can keep more of them in the lower band.

Salary vs dividends for company directors

If you run your own limited company, you'll often choose between paying yourself a salary, taking dividends, or a mix of both. Dividends avoid National Insurance, but they are paid out of post-Corporation Tax profit and now attract higher dividend rates. Salary is deductible for the company but carries National Insurance and is taxed at your normal Income Tax rates.

• A modest salary can preserve your State Pension record and use your tax-free Personal Allowance efficiently.
• Dividends above the £500 allowance are taxed at 10.75%, 35.75% or 39.35% depending on your band.
• The right balance depends on company profits, your other income and your personal goals.

Because the rates rose this year, it's worth re-running the numbers. Our dividend vs salary calculator compares the two approaches side by side, and our guide on how directors should pay themselves walks through the trade-offs in detail.

How to report and pay dividend tax

How you pay depends on how much you receive. For larger amounts you'll usually report dividends through Self Assessment. For smaller amounts, HMRC may collect the tax by adjusting your tax code instead.

• Dividends of £500 or less in the year: nothing to pay and usually nothing to report.
• Dividends above £500: report them on a Self Assessment tax return, or contact HMRC, who may change your tax code for smaller sums.
• Keep your dividend vouchers as a record of what each company paid you and when.

If you don't already complete a tax return and your dividend income means you now owe tax, you may need to register for Self Assessment. Check the deadlines so you don't miss the registration and filing dates.

Worked example: dividends that cross into the higher-rate band

The basic-rate example above is the simplest case, but in practice many shareholders find their dividends straddle two bands. Because dividends are the top slice of income, only the part that pushes you over the higher-rate threshold is taxed at the upper rate.

Suppose your salary and other income use up most of your basic-rate band, leaving £4,000 of basic-rate room before you reach the higher-rate threshold, and you then receive £14,000 in dividends.

1. The first £500 is covered by the Dividend Allowance and taxed at 0%.
2. The next £4,000 falls in the remaining basic-rate band and is taxed at the ordinary rate of 10.75%, giving £430.
3. The remaining £9,500 falls in the higher-rate band and is taxed at the upper rate of 35.75%, giving £3,396.25.
4. Total dividend tax: £430 + £3,396.25 = £3,826.25.

This is why the order of your income matters so much. If you had less salary, more of the dividends would have stayed in the basic-rate band at 10.75%. The dividend tax calculator handles this split automatically, and the income tax calculator shows how your wages fill the bands first.

Common mistakes when working out dividend tax

Dividend tax trips people up more than most taxes, mainly because of the way it stacks on top of everything else. These are the errors that lead to surprise bills.

• Treating the £500 as extra on top of your bands. The Dividend Allowance is taxed at 0%, but it still uses up part of whichever band the dividends sit in - it doesn't widen your bands.
• Forgetting to add salary first. Dividends are taxed after earnings and savings interest. If you work out the dividends in isolation you can badly underestimate the rate.
• Assuming a flat rate. A single dividend can be split across the 10.75% and 35.75% rates if it crosses the higher-rate threshold.
• Ignoring the new higher rates. The ordinary and upper rates rose by 2 percentage points this year, so calculations carried over from a previous year will understate the bill.
• Not keeping vouchers. Each dividend should have a voucher recording the amount and date, which you'll need when completing Self Assessment.

Who is most affected by the rate rises?

Because the ordinary rate rose to 10.75% and the upper rate to 35.75%, the people who feel the change most are those drawing meaningful dividend income above the £500 allowance. Owner-managed company directors who take a large share of their income as dividends will see a noticeable increase, especially where dividends reach into the higher-rate band.

Investors holding shares outside an ISA are also affected, particularly anyone whose portfolio generates more than the £500 allowance each year. By contrast, anyone whose total dividends stay at or below £500 sees no change, because that income remains tax-free. Sheltering shares inside an ISA removes them from dividend tax entirely, so for many investors the rate rise is a prompt to use their ISA allowance more fully. Directors weighing how to extract profit should revisit the salary-versus-dividend balance, since the gap between the two routes has narrowed: our dividend vs salary calculator and the directors' pay guide walk through the trade-offs now that the rates have moved.

Frequently asked questions

How much is the Dividend Allowance in 2026/27?

The Dividend Allowance for 2026/27 is £500, taxed at 0%. The first £500 of dividends you receive in the tax year is free of dividend tax.

What are the dividend tax rates for 2026/27?

The ordinary rate (basic-rate band) is 10.75%, the upper rate (higher-rate band) is 35.75% and the additional rate is 39.35%. The ordinary and upper rates rose by 2 percentage points this year.

Do I pay dividend tax on shares held in an ISA?

No. Dividends from shares held inside an ISA are tax-free and don't count towards your Dividend Allowance or your taxable income.

How much tax will I pay on £10,000 of dividends?

For a basic-rate taxpayer whose dividends stay in the basic-rate band, the first £500 is tax-free and the remaining £9,500 is taxed at 10.75%, giving £1,021.25 of dividend tax.

Why are my dividends taxed at two different rates?

Dividends are the top slice of your income. If they straddle a tax band threshold, the part in the basic-rate band is taxed at 10.75% and the part in the higher-rate band at 35.75%.

Do I have to fill in a tax return for dividends?

If your dividends exceed £500 you generally report them through Self Assessment. For smaller amounts, HMRC may instead adjust your tax code to collect what you owe.

Related calculators: Dividend Tax Calculator, Dividend vs Salary Calculator, Income Tax Calculator and Self-Employed Tax Calculator.

This guide is general information for the 2026/27 tax year, not personal tax advice. Check your own circumstances at gov.uk.

Who this affects most

Real example: Hannah, director on £9,100 salary + £30,000 dividends

Whether £9,100 or £12,570 is her better salary now depends on the Employment Allowance: two-director companies should read the Employment Allowance guide and re-run the dividend vs salary calculator.

If this is you, do this

All figures checked against HMRC published rates on 27 July 2026.