In 2026/27 the first £500 of dividend income is tax-free (the dividend allowance). Above that, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate) — the basic and higher rates rose 2 percentage points from 2025/26. Dividends stack on top of your other income and carry no National Insurance. Enter your salary and dividend amount above to see the tax owed.
- Dividend allowance for 2026/27: £500 (reduced from £2,000 in 2022/23 — plan accordingly).
- Basic-rate dividend tax: 10.75% — up 2pp from 8.75% in 2025/26.
- Higher-rate dividend tax: 35.75% — up 2pp from 33.75% in 2025/26.
- Additional-rate dividend tax: 39.35% — unchanged.
- Dividends are taxed as the top slice of income: your salary fills the basic rate band first, then dividends.
- No NI on dividends — the tax saving over employment income widens as salary increases.
- Dividends can only be paid from post-Corporation-Tax retained profit.
2026/27 dividend tax rates
| Band | Total income range | Rate (2026/27) | Rate (2025/26) |
|---|---|---|---|
| Dividend allowance | First £500 | 0% | 0% |
| Basic rate | £12,571 to £50,270 | 10.75% | 8.75% |
| Higher rate | £50,271 to £125,140 | 35.75% | 33.75% |
| Additional rate | Above £125,140 | 39.35% | 39.35% |
Worked example — director on £12,570 salary + £40,000 dividends
| Step | Amount |
|---|---|
| Salary (covered by Personal Allowance) | £12,570 — no IT or NI |
| Dividend allowance | £500 at 0% |
| Dividends in basic rate band (£39,500 × 10.75%) | £4,246.25 |
| Dividends above basic rate (none in this example) | — |
| Total dividend tax | £4,246.25 |
| Effective rate on all dividends | 10.62% |
How are dividends taxed differently from salary?
Dividends don't attract National Insurance — neither employee (Class 1) nor employer NI. That makes them attractive for company directors extracting profit. The trade-off is that dividends can only come from post-Corporation-Tax profit (19–25% CT comes first), whereas salary is a deductible expense for the company.
For most directors with income below £50,270, the combination of a salary at the Personal Allowance (£12,570) and the rest as dividends produces the lowest overall tax bill — but this balance shifts as CT rates, dividend rates, and the Apprenticeship Levy interact.
Frequently asked questions
Did dividend tax rates change for 2026/27?
Yes. The basic-rate dividend tax rose from 8.75% to 10.75% and the higher rate from 33.75% to 35.75% — both up 2 percentage points. The additional rate (39.35%) is unchanged. The dividend allowance remains £500.
Do I pay NI on dividends?
No. Dividends are not subject to National Insurance — either employee Class 1 or employer NI. This remains a key tax advantage over taking income as salary.
Do I need to file a Self Assessment return for dividends?
Yes, if your dividend income exceeds £500. HMRC requires a Self Assessment return to declare dividend income above the allowance. You cannot pay dividend tax via PAYE.
Can I hold dividends in a Stocks and Shares ISA tax-free?
Yes. Dividends from shares or funds held inside an ISA are completely free of dividend tax, regardless of the amount. The annual ISA allowance for 2026/27 is £20,000.