Dividend Tax Rates UK 2026-27

What Is the Dividend Allowance?

The dividend allowance for 2026-27 is £500. This is the amount of dividend income you can receive in the tax year without paying any dividend tax, regardless of your other income.¹

The allowance was £2,000 until 2022-23, then reduced to £1,000 in 2023-24 and £500 from 2024-25 onwards. It applies to all dividends from UK and overseas companies, including those from shares held outside an ISA.

Current Dividend Tax Rates

Dividend income above the £500 allowance is taxed at band-specific rates:²

Basic rate (£12,571–£50,270)

8.75%

Higher rate (£50,271–£125,140)

33.75%

Additional rate (over £125,140)

39.35%

These rates have been in place since April 2022. Before that, dividend tax was 7.5% basic, 32.5% higher, and 38.1% additional.

How Dividend Tax Is Calculated

Dividends are treated as the top slice of your income. Your other income (salary, pension, rental income) fills up your personal allowance and tax bands first, then dividends sit on top.³

For example, if you earn a £40,000 salary and receive £15,000 in dividends:

1. Your salary uses £40,000 of your income bands.
2. You have £10,270 of basic-rate band left (£50,270 − £40,000).
3. First £500 of dividends is covered by the allowance (tax-free).
4. Next £9,770 of dividends (£10,270 − £500) is taxed at 8.75%.
5. Remaining £4,730 of dividends is taxed at 33.75% (higher rate).

Total dividend tax: (£9,770 × 8.75%) + (£4,730 × 33.75%) = £2,451.

Do I Need to Report Dividend Income?

You must complete a Self Assessment tax return if:⁴

• Your total dividend income is over £10,000 in the tax year, or
• You owe tax on dividends above the £500 allowance.

If your only income is from dividends and it's below £12,570 (the personal allowance plus the dividend allowance), you may not owe any tax. But if your dividends are over £10,000, you still need to report them.

You can sometimes ask HMRC to adjust your PAYE tax code to collect small amounts of dividend tax, but Self Assessment is the standard route.

Company Directors and Dividends

Many limited company directors pay themselves a low salary (around the NI threshold, £12,570/year) and take the rest as dividends. This is tax-efficient because dividends don't attract National Insurance.

After the £500 allowance, dividends are cheaper than salary for basic-rate taxpayers. But for higher-rate taxpayers, the tax saving is smaller. Compare:

• Salary: 40% income tax + 2% NI = 42% total
• Dividends: 33.75% dividend tax (no NI)

This saves 8.25 percentage points, but you need to factor in the employer's National Insurance (13.8%) that the company pays on salary.

Dividends from ISAs and Pensions

Dividends received within an ISA or pension wrapper are completely tax-free. They don't count towards your £500 allowance or your Self Assessment. This is one reason ISAs are popular for dividend-paying shares.