Dividend tax is the Income Tax you pay on dividends taken from a limited company's profits. For the 2026/27 tax year you can receive £500 in dividends tax-free under the Dividend Allowance. Anything above that is taxed at 10.75% for basic-rate taxpayers, 35.75% at the higher rate and 39.35% at the additional rate.
Dividends are not earnings, so there is no National Insurance to pay on them. That is why the classic director set-up is a small salary topped up with dividends. The calculator above stacks your salary and dividends together and applies each rate to the right slice, exactly the way HMRC does.
How is dividend tax calculated in 2026/27?
Your dividends sit on top of your other income, and the rate you pay depends on which Income Tax band they fall into. Your £12,570 Personal Allowance is used first, usually against your salary. The £500 Dividend Allowance is then tax-free. Everything above that is taxed at the dividend rate for the band it lands in, as set out in HMRC's guidance on tax on dividends.
| Band | Taxable income (2026/27) | Dividend rate |
|---|---|---|
| Basic rate | £12,571 to £50,270 | 10.75% |
| Higher rate | £50,271 to £125,140 | 35.75% |
| Additional rate | Over £125,140 | 39.35% |
The £500 Dividend Allowance still uses up part of whichever band it sits in, even though it is taxed at 0%.
What does dividend tax look like on £20,000 of dividends?
Say you take a £12,570 salary and £20,000 in dividends in 2026/27, with no other income. The salary is covered by your Personal Allowance, so there is no Income Tax on it. The first £500 of dividends is tax-free. The remaining £19,500 all sits inside the basic-rate band, so it is taxed at 10.75%, a dividend tax bill of about £2,096. You keep roughly £30,474 of the £32,570 you drew.
Draw more and some of your dividends cross into the higher-rate band at 35.75%, which is where planning your salary and dividend mix starts to save real money. See our guide to the most tax-efficient salary and dividend split for 2026/27.
How can I pay less dividend tax?
A few legitimate moves bring a dividend tax bill down: take a salary that makes full use of your Personal Allowance, split shares with a spouse or civil partner so you both use your allowances and basic-rate bands, make pension contributions to widen your basic-rate band, and spread large dividends across two tax years. Dividends can only be paid from distributable profits after Corporation Tax, with the right board minutes and vouchers in place.
If you take money out of the company without declaring a dividend, it can become a director's loan with its own tax charges, so it pays to plan withdrawals in advance. For the bigger picture on company profits and tax, read our complete guide to Corporation Tax. If you would like the mix modelled around your own company, our tax advisory service can plan the most efficient split for you.
Related guides and calculators
- Salary vs dividends: the most tax-efficient mix for 2026/27
- How to pay dividends from a limited company
- Director's loan account, explained
- Take-home pay calculator
- Income tax calculator
Frequently asked questions
What is the dividend allowance for 2026/27?
The Dividend Allowance for the 2026/27 tax year is £500. You can receive £500 of dividends tax-free each year, on top of your £12,570 Personal Allowance. Only dividends above the £500 allowance are taxed.
What are the dividend tax rates for 2026/27?
For 2026/27, dividends above the £500 allowance are taxed at 10.75% for basic-rate taxpayers, 35.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers. The rate depends on which Income Tax band the dividends fall into once stacked on top of your other income.
Do I pay National Insurance on dividends?
No. Dividends are not earnings, so there is no National Insurance to pay on them. This is the main reason company directors often take a small salary and draw the rest of their income as dividends.
How much can I take in dividends before paying any tax?
If dividends are your only income, you can take up to £13,070 tax-free in 2026/27: £12,570 covered by the Personal Allowance plus the £500 Dividend Allowance. Above that you pay dividend tax at the rate for your band.
Are dividends taxed before or after Corporation Tax?
After. A company pays Corporation Tax on its profits first, and dividends are paid from what is left. You then pay dividend tax personally on what you receive, which is why directors weigh up salary, dividends and pension contributions together.