Dividend Tax Rise 2026: New 10.75% and 35.75% Rates Explained

If you take income as dividends - whether you're a company director, a small business owner or an investor - your tax bill went up on 6 April 2026. The dividend tax rates rose by two percentage points across the board, the first increase to dividend taxation in several years, and it lands on top of frozen allowances that were already squeezing shareholders. This guide explains exactly what changed, how much more you'll pay on common dividend amounts, and what you can do about it.

What are the new dividend tax rates for 2026/27?

From the start of the 2026/27 tax year, the three dividend tax rates increased as follows:

In other words, basic-rate and higher-rate taxpayers now pay two percentage points more on their dividend income, while the additional-rate band is unchanged. The rate that applies to you depends on which Income Tax band your dividends fall into once they're stacked on top of your other income - dividends are always treated as the top slice of your income.

The dividend allowance is still just £500

The tax-free dividend allowance remains at £500 for 2026/27 - a figure that has been cut repeatedly in recent years, down from £2,000 not long ago. Only the first £500 of dividends each year is tax-free; everything above that is taxed at the rates in the table. Combined with the rate rise, a shrunken allowance means even modest dividend income now attracts a real tax charge. You can see the exact figure for your situation with our dividend tax calculator.

How much more will you pay?

The two-point rise sounds small, but it compounds quickly on larger dividends. Here's roughly how the tax compares on common amounts for a basic-rate shareholder (dividends within the basic-rate band, after the £500 allowance):

For higher-rate shareholders the gap is wider still, because more of the dividend is taxed at the new 35.75% rate. To see the precise number for any amount, try one of our worked examples such as dividend tax on £30,000, or run your own figure through the calculator.

Why this matters most to company directors

The classic tax-efficient set-up for a limited company director has been a small salary (around the National Insurance threshold) topped up with dividends, because dividends carry no National Insurance. That structure still works, but the maths has shifted: with dividend rates up two points and employer/employee NI changes in recent years, the gap between salary and dividends has narrowed. If you're a director, it's worth re-running the comparison rather than assuming last year's split is still optimal - our salary vs dividends calculator does exactly that, and the salary calculator shows the take-home on the salary side.

Remember too that dividends must be paid from retained profit after Corporation Tax, and properly documented with a dividend voucher and board minute. If you need the paperwork, our dividend voucher generator produces a compliant voucher in seconds.

How dividend tax is actually worked out

It's a common mistake to think dividends are taxed in isolation. In fact, HMRC adds your dividends on top of your other taxable income (salary, pension, rental profit and so on) to decide which rate applies. The steps are:

1. Add up your non-dividend income and work out how much of your Personal Allowance and basic-rate band it uses.
2. Stack your dividends on top. The first £500 is tax-free under the dividend allowance.
3. Any remaining dividends sitting in the basic-rate band are taxed at 10.75%, those in the higher-rate band at 35.75%, and anything in the additional-rate band at 39.35%.

This is why a pay rise or a bonus can push some of your dividends into a higher band and increase the rate they're taxed at. If your total income is near a threshold, the frozen bands (see our guide on income tax) make this more likely every year.

Do you need to tell HMRC about your dividends?

If your dividends are above the £500 allowance, you generally need to report them. How depends on the amount: dividends up to £10,000 can often be dealt with by HMRC adjusting your tax code or via a Simple Assessment, while dividends over £10,000 mean you must file a Self Assessment return. If you're a director already in Self Assessment, you simply include them on your return. And if your combined self-employment and property income is high enough, keep an eye on Making Tax Digital for Income Tax, which changes how some people report from 2026 onwards.

Five ways to soften the dividend tax rise

• Use both partners' allowances. If shares are held jointly with a spouse who pays a lower rate, you each get a £500 allowance and may use lower bands - a genuine, legitimate planning step.
• Shelter shares in an ISA. Dividends on shares held inside a Stocks & Shares ISA are completely tax-free. (Note the ISA rules are changing for 2026/27 and 2027 - check the limits before you act.)
• Consider pension contributions. Paying into a pension can extend your basic-rate band, keeping more of your dividends out of the higher-rate 35.75% bracket.
• Review your salary/dividend split. For directors, the optimal mix has moved - re-check it each tax year.
• Time dividend payments. Spreading dividends across tax years can keep you below a threshold, though commercial reality and cash flow come first.

What hasn't changed

It's worth being clear about what stayed the same, so you don't over-react: the additional-rate dividend charge is still 39.35%, the £500 allowance is unchanged, and dividends still carry no National Insurance. The headline is simply that basic- and higher-rate dividends each cost two points more. For most shareholders that's a manageable increase - but on larger portfolios and director dividends it adds up, and it's a reminder to keep your structure under review.

Worked example: a director taking £50,000 in dividends

Let's take a common case: a limited company director who pays themselves a small salary of £12,570 (using up the Personal Allowance) and tops it up with £50,000 of dividends. Here's how the dividend tax stacks up for 2026/27:

• The salary of £12,570 uses the full Personal Allowance, so all £50,000 of dividends is taxable income on top.
• The first £500 is covered by the dividend allowance - tax-free.
• The next slice - up to the £50,270 higher-rate threshold - is taxed at the basic dividend rate of 10.75%. That's roughly £37,200 of dividends at 10.75% ≈ £3,999.
• The remaining dividends above the threshold are taxed at the higher rate of 35.75%. That's about £12,300 at 35.75% ≈ £4,397.
• Total dividend tax ≈ £8,396, compared with roughly £7,000 under the old rates - an increase of about £1,400 for the same dividends.

The exact figure depends on the precise split, but the direction is clear: the higher a director's dividends, the larger the cash impact of the two-point rise. This is why so many directors are revisiting their pay strategy this year. Run your own numbers through the dividend tax calculator and compare a salary-heavy approach with the salary vs dividends calculator before deciding your split for the year.

How dividend tax compares with tax on salary

Even after the rise, dividends are still taxed more lightly than salary in one important respect: they carry no National Insurance. A salary attracts both Income Tax and employee National Insurance (and employer NI for the company), whereas dividends attract only dividend tax. That said, salary is a deductible business expense that reduces Corporation Tax, while dividends are paid from profit after Corporation Tax. The right balance depends on your profit level, your other income and your personal circumstances - there's no one-size-fits-all answer, which is exactly why an annual review pays off. Our National Insurance calculator shows the NI you'd pay on the salary route for comparison.

Frequently asked questions

What is the new dividend tax rate for 2026/27?

Dividend tax rose to 10.75% for basic-rate taxpayers and 35.75% for higher-rate taxpayers from 6 April 2026, both up two percentage points. The additional rate stays at 39.35%.

How much can I receive in dividends tax-free?

The dividend allowance is £500 for 2026/27, so the first £500 of dividends each year is tax-free. Dividends held inside a Stocks & Shares ISA are also tax-free regardless of amount.

Do dividends pay National Insurance?

No. Dividends are free of National Insurance, which is why a salary-plus-dividends mix is common for company directors - though the dividend rate rise narrows the advantage.

How do I work out my dividend tax bill?

Add your dividends on top of your other income, deduct the £500 allowance, then apply the rate for each band the dividends fall into. Our dividend tax calculator does this automatically for any amount.

Sources: GOV.UK - Tax on dividends and the House of Commons Library - Direct taxes: rates and allowances 2026/27. Figures are for the 2026/27 tax year; check GOV.UK for the latest position before acting.