How dividend tax works (2026/27)
Dividends are payments a company makes to its shareholders out of profit. In the UK you pay dividend tax on dividends above your allowances, and the rate depends on which Income Tax band the dividends fall into — because dividends are treated as the top slice of your income, stacked on top of your salary and other income.
The £500 dividend allowance
The first £500 of dividends each year is tax-free. Dividends also covered by your unused Personal Allowance (£12,570) are tax-free too.
Dividend tax rates for 2026/27
| Band | Dividend rate 2026/27 |
|---|---|
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Why the band matters
Your salary and other income "fills up" the tax bands first. Your dividends then sit on top. So if your salary already uses up the basic-rate band, your dividends are taxed at the higher-rate dividend rate — even the first pound above your allowance.
Example: £12,570 salary + £30,000 dividends
A common setup for a company director. The £12,570 salary uses the Personal Allowance. Of the £30,000 dividends, £500 is covered by the dividend allowance, and the rest is taxed — most at the basic-rate 10.75%, with any portion above the £50,270 threshold at 35.75%. Use the calculator for your exact figure.
Frequently asked questions
Do dividends count towards my tax band?
Yes. Even the tax-free dividend allowance uses up part of the band it sits in. Dividends are added on top of your other income to decide the rate.
Are ISA dividends taxed?
No. Dividends from shares held in a Stocks & Shares ISA are completely tax-free and don't use your dividend allowance.
How do I pay dividend tax?
If dividends are £10,000 or more you usually need to file a Self Assessment tax return. Below that you can sometimes ask HMRC to change your tax code. Check GOV.UK for the current process.
Is salary or dividends more tax-efficient for directors?
It depends on corporation tax, National Insurance and your overall income. Since dividend rates rose for 2026/27, the maths has shifted — take tailored advice from an accountant.
More United Kingdom calculators
This calculator provides estimates for the 2026/27 tax year (England, Wales & Northern Ireland thresholds) based on published HMRC rates and is for general information only — it is not financial or tax advice. It estimates dividend tax only, not the Income Tax and National Insurance on your salary. Scottish taxpayers have different bands for non-dividend income. For your exact position, see GOV.UK or speak to a qualified adviser. Source: GOV.UK (Tax on dividends).