If you take dividends from your own limited company, the rules just got more expensive. From 6 April 2026 the basic and higher rates of dividend tax both rose by two percentage points, so the figure you budgeted for last year no longer holds.
This guide shows you exactly how dividend tax works in 2026/27, what the new rates are, and how to work out your own bill. We'll walk through a full illustrative example for a typical director who takes a small salary plus dividends.
It's written for limited company directors, contractors and landlords who hold shares, but the method is the same for anyone with UK dividend income.
What are the dividend tax rates for 2026/27?
Dividends sit on top of your other income, and the rate you pay depends on which Income Tax band the dividend falls into. Here are the rates for the 2026/27 tax year.
| Band | Where the dividend falls | Dividend rate 2026/27 |
|---|---|---|
| Dividend allowance | First £500 of dividends | 0% |
| Ordinary (basic) rate | Within the basic rate band | 10.75% |
| Upper (higher) rate | Within the higher rate band | 35.75% |
| Additional rate | Above the additional rate threshold | 39.35% |
The basic and higher dividend rates were 8.75% and 33.75% in 2025/26. Both increased by two percentage points from 6 April 2026, following the Autumn Budget 2025. The additional rate is unchanged at 39.35%.
The bands themselves are set by your total income. For 2026/27 the personal allowance is £12,570, the basic rate band runs up to £37,700 of taxable income above that allowance, the higher rate threshold is £50,271, and the additional rate applies to income over £125,140. These figures apply to England, Wales and Northern Ireland; Scotland sets its own Income Tax bands, but dividend rates are the same UK-wide.
If you want the answer without the maths, our dividend tax calculator does it for you in seconds.
How does the £500 dividend allowance work?
Everyone gets a dividend allowance of £500 for 2026/27. Dividends within it are taxed at 0%.
There's a catch that trips people up. The allowance isn't extra tax-free room on top of your bands. It's a 0% rate that still uses up part of whatever band the dividend sits in. So if you're a higher-rate taxpayer, that £500 occupies £500 of your higher rate band rather than giving you a separate exemption.
You also don't pay any dividend tax on shares held inside a stocks and shares ISA. ISA dividends sit outside this entirely.
How do I work out my dividend tax bill?
The method is the same every year. Only the rates and thresholds change.
- Add up your total income for the year: salary, dividends, rental profit, savings interest and anything else taxable.
- Use your personal allowance (£12,570) against your income. Convention is to set it against non-dividend income first.
- Stack your dividends on top of your other taxable income. Dividends are treated as the top slice.
- Apply the £500 dividend allowance at 0%, remembering it still uses up band space.
- Tax the rest at the dividend rate for whichever band each slice falls into: 10.75%, 35.75% or 39.35%.
The key idea is that dividends are the top slice of your income. So you fill up the basic rate band with your salary or other income first, then your dividends sit on whatever band is left.
Worked example: a director on a small salary plus dividends
Illustrative example. Aisha is the sole director and shareholder of her own limited company. For 2026/27 she takes a salary of £12,570 and dividends of £50,000. She has no other income and lives in England.
Step 1: her total income is £62,570 (£12,570 salary plus £50,000 dividends).
Step 2: her £12,570 personal allowance is set against her salary. That leaves the salary fully covered and nothing of the personal allowance spare, because the salary equals the allowance exactly.
Step 3: the dividends stack on top. The basic rate band gives £37,700 of taxable room above the personal allowance, and her salary hasn't used any of it, so the full £37,700 is available.
Step 4: the first £500 of dividends uses the dividend allowance at 0%. That still takes up £500 of the basic rate band, leaving £37,200 of basic-band room.
Step 5: tax each slice.
| Dividend slice | Amount | Rate | Tax |
|---|---|---|---|
| Dividend allowance | £500 | 0% | £0.00 |
| Rest of basic rate band | £37,200 | 10.75% | £3,999.00 |
| Higher rate band | £12,300 | 35.75% | £4,397.25 |
| Total dividend tax | £50,000 | £8,396.25 |
So Aisha's dividend tax bill for 2026/27 is £8,396.25. Her salary of £12,570 is within her personal allowance, so there's no Income Tax on it.
A quick check on the slices: £500 + £37,200 + £12,300 = £50,000, which matches her total dividends. The higher rate slice is the part of her income above the £50,271 higher rate threshold: £62,570 total income minus £50,270 leaves £12,300 of dividends in the higher band.
How have the new rates changed what I pay?
Because the basic and higher rates each went up by two percentage points, anyone taking meaningful dividends pays more in 2026/27 than in 2025/26 on the same figures.
Using Aisha's numbers, here's the comparison.
| 2025/26 rates | 2026/27 rates | |
|---|---|---|
| Basic rate band dividends (£37,200) | 8.75% = £3,255.00 | 10.75% = £3,999.00 |
| Higher rate band dividends (£12,300) | 33.75% = £4,151.25 | 35.75% = £4,397.25 |
| Total dividend tax | £7,406.25 | £8,396.25 |
On identical income, Aisha pays £990.00 more in 2026/27 than she would have under the old rates. The more of your income comes from dividends, the more the change costs you, which is why it's worth revisiting your salary and dividend split for the year.
If you run a company, the right balance between salary, dividends and pension is a planning question worth getting right. We help limited companies and contractors structure their pay tax-efficiently, and our tax advisory service can model the options for your own numbers.
How and when do I pay the tax?
You don't pay dividend tax through your company. It's a personal tax that you report and pay through Self Assessment.
If your dividends exceed your unused personal allowance plus the £500 dividend allowance, you need to report them to HMRC. For most directors that means a Self Assessment tax return; smaller amounts can sometimes be collected through a change to your tax code, so check your position if you're unsure. The online filing deadline is midnight on 31 January following the end of the tax year, and any tax due is payable by the same date. So dividends taken in 2026/27 are reported and paid by 31 January 2028.
Depending on the size of your bill, you may also need to make payments on account towards the next year, due on 31 January and 31 July. If filing isn't something you want to handle yourself, our Self Assessment service takes it off your plate.
Landlords who also hold shares should remember that dividends stack on top of rental profit, which can push more of the dividends into the higher rate band. If that's you, our guidance for landlords covers how the different income types interact.
Frequently asked questions
What are the dividend tax rates for 2026/27?
For 2026/27 the dividend rates are 0% on the first £500 (the dividend allowance), 10.75% within the basic rate band, 35.75% within the higher rate band, and 39.35% above the additional rate threshold of £125,140.
Is the dividend allowance still £500 in 2026/27?
Yes. The dividend allowance is £500 for 2026/27, the same as 2025/26. Dividends within it are taxed at 0%, but the allowance still uses up part of whatever Income Tax band the dividend sits in.
Do I pay National Insurance on dividends?
No. Dividends are not earnings, so there's no National Insurance on them. This is one reason a small salary plus dividends can be tax-efficient for company directors, though the gap has narrowed as dividend rates have risen.
How do I report and pay tax on my dividends?
You report dividends through Self Assessment and pay the tax by 31 January following the tax year. Dividend tax isn't deducted by your company, so you need to set the money aside yourself.
Are dividends in an ISA taxed?
No. Dividends from shares held in a stocks and shares ISA are tax-free and don't count towards your dividend allowance or your Self Assessment.
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Want a figure for your own numbers?
Plug your salary and dividends into our dividend tax calculator for an instant 2026/27 estimate, or use the income tax calculator to see the full picture. If you'd rather have an accountant model your salary and dividend split properly, book a free 20-minute call with a Zmartly accountant at zmartly.co.uk.
