Dividend tax guide · 2026/27
Dividend Tax UK 2026/27
Dividend tax in the UK is charged at three rates depending on which income band your dividends fall into once stacked with all other income. The annual dividend allowance for 2026/27 is £500 — reduced from £1,000 in 2023/24 and £2,000 before that.
2026/27 dividend tax rates at a glance
| Band | Rate | Applies when total income falls in |
|---|
| Dividend allowance | 0% | First £500 of dividends (all taxpayers) |
| Basic rate | 8.75% | Basic rate band — up to £50,270 total income |
| Higher rate | 33.75% | Higher rate band — £50,271 to £125,140 |
| Additional rate | 39.35% | Additional rate band — above £125,140 |
Key stacking rule: Dividends are always treated as the top slice of income. Salary, pension, and other income use the Personal Allowance and lower bands first. Dividends then fill the remaining space — often pushing into higher bands than they would appear if considered alone.
Worked examples — dividends stacked with salary
Example 1: Director taking £12,570 salary + £40,000 dividends
- Salary uses the Personal Allowance: £12,570 → no income tax on salary
- Dividends: first £500 covered by dividend allowance → 0%
- Next £37,200 of dividends fall in the basic rate band → 8.75% → £3,255 tax
- Remaining £2,300 crosses into higher rate band → 33.75% → £776 tax
- Total dividend tax: approximately £4,031
Example 2: Director taking £12,570 salary + £80,000 dividends
- Salary: £12,570 → no tax (uses PA)
- Dividends: £500 allowance → 0%
- Next £37,200 basic rate → 8.75% → £3,255
- Remaining £42,300 in higher rate band → 33.75% → £14,276
- Total dividend tax: approximately £17,531
What changed for 2026/27?
- Dividend allowance: Unchanged at £500. This was cut from £1,000 in 2024/25. No further reduction announced.
- Dividend tax rates: Unchanged — 8.75% / 33.75% / 39.35%
- Income tax thresholds: Frozen — the bands that determine which dividend rate applies are unchanged
Although the dividend rates haven't changed, the effective tax burden is rising in real terms because salary growth is pushing more income into higher bands — meaning more dividends fall into the 33.75% higher rate bracket.
Frequently asked questions
Do I pay NI on dividends?
No. Dividends are not subject to National Insurance — employee or employer. This is why limited company directors often extract most income as dividends.
Does the allowance apply per person?
Yes. Each individual gets a £500 dividend allowance. Married couples or civil partners can split dividend-producing assets between them to use both allowances — up to £1,000 of dividends tax-free between them.
Are ISA dividends taxable?
No. Dividends earned inside a Stocks & Shares ISA are completely tax-free and don't count toward the £500 allowance.