Dividend Tax UK 2026/27: Rates, Allowance and How to Pay

If you take money out of a limited company as a shareholder, dividend tax is the Income Tax you pay on those dividends. For the 2026/27 tax year the rates went up. The first £500 of dividends is still tax-free, and above that you pay 10.75%, 35.75% or 39.35% depending on which Income Tax band the dividends fall into. On the basic and higher rates that is two percentage points more than the year before, a rise announced at the Autumn Budget 2025.

For a director-shareholder who pays themselves mostly in dividends, the change is money out of pocket on exactly the same profit. This guide covers what the £500 allowance shields, the current rates, a worked example for a typical small-company director, how dividends stack on top of a salary, and the steps to report and pay so you settle the bill through the right route and on time.

Key Takeaways

• The dividend allowance is £500 for 2026/27: the first £500 of dividends is taxed at 0%, whatever your income.
• Above the allowance, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate) for 2026/27.
• The basic and higher rates rose by two percentage points from 6 April 2026; the additional rate stayed at 39.35%.
• Dividends are added on top of your other income to decide the band, so they can push you into a higher band even though they are taxed at their own rates.
• Report dividends over the allowance to HMRC: up to £10,000 you can adjust your tax code or use Self Assessment; over £10,000 you must file a Self Assessment return.

What is dividend tax?

A dividend is a share of company profit paid to shareholders. Dividend tax is the Income Tax charged on that dividend income once it goes above your tax-free amounts. It is not a company tax and not National Insurance. The company pays Corporation Tax on its profit first; the dividend comes out of what is left, and you then pay dividend tax personally on what you receive.

You get a dividend allowance that taxes the first slice of dividends at 0%. For 2026/27 that allowance is £500. Dividends within your unused Personal Allowance are also untaxed, so if some of your £12,570 Personal Allowance is not used up by other income, dividends can sit inside it tax-free as well. Everything above those two shields is taxed at the dividend rates.

One point trips people up every year: the dividend allowance does not sit outside the tax system. Dividends covered by the allowance are taxed at 0%, but they still count towards your total income when HMRC works out which band the rest of your dividends fall into.

Dividend tax rates for 2026/27

The rate you pay depends on the Income Tax band the dividend income falls into once it is stacked on top of your other earnings. Here are the current rates against last year's, so the change is clear.

The policy paper puts it plainly: "The ordinary rate will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%... The additional rate will remain unchanged at 39.35%." The change applies from 6 April 2026, and the £500 allowance was left as it was.

The bands themselves are the ordinary Income Tax bands. For 2026/27 the Personal Allowance is £12,570, the basic rate runs to £50,270, the higher rate to £125,140, and the additional rate applies above that. Those thresholds are frozen, so as dividends or wages rise, more of your income drifts into the higher bands over time.

How dividends stack on top of your other income

Dividends are treated as the top slice of your income. HMRC takes your salary, pension and other income first, then adds dividends on top, and the band each part of the dividend lands in sets its rate. That is why the same dividend can be taxed partly at the basic rate and partly at the higher rate in one year.

Take a common small-company setup for 2026/27: a director pays themselves a £12,570 salary, which uses up the Personal Allowance, and takes £40,000 in dividends. The salary and dividends here are illustrative, and salary carries its own National Insurance thresholds, but the dividend maths works like this:

• The salary of £12,570 uses the whole Personal Allowance, so none of the basic-rate band is taken up by wages.
• The first £500 of dividends is covered by the dividend allowance and taxed at 0%. It still counts towards the band, so it fills £12,571 to £13,070.
• The next £37,200 of dividends runs up to the £50,270 basic-rate limit and is taxed at 10.75%, which is £3,999.00.
• The final £2,300 of dividends sits above £50,270, in the higher-rate band, taxed at 35.75%, which is £822.25.

That is a dividend tax bill of £4,821.25 on £40,000 of dividends. Under last year's rates the same dividends would have cost £4,031.25, so the two-point rise adds £790 to the bill on identical profit. For a director drawing dividends year after year, that is the figure to plan around.

If your total income climbs past £100,000, a second effect kicks in: your Personal Allowance drops by £1 for every £2 above £100,000 and reaches zero at £125,140, so dividends in that range can be taxed unusually heavily as the allowance tapers away.

How to report and pay dividend tax

If your dividends for the year come to £500 or less, they are inside the allowance and you have nothing to report. Above that, the route depends on the amount.

For taxable dividends of £10,000 or less, you can tell HMRC without a full return: contact the Income Tax helpline, ask HMRC to change your tax code so the tax comes out of your wages or pension, or include the dividends on your Self Assessment return if you already file one. For taxable dividends over £10,000, you must file a Self Assessment tax return. If you do not normally file one, register by 5 October following the end of the tax year in which you received the dividends, and HMRC will set you up.

Unlike a PAYE salary, dividends have no tax taken at source, so the tax is settled after the year through your code or your return. Set the money aside as you draw the dividends rather than finding it in January.

The company-side rules HMRC expects you to follow

Dividend tax is the personal half of the picture. The company has to pay the dividend correctly first, and the rules are strict enough that getting them wrong can undo the tax treatment.

A company can only pay dividends out of profit. In HMRC's words, "your company must not pay out more in dividends than its available profits from current and previous financial years." That is profit after Corporation Tax, and it includes profit retained from earlier years, not just this year's.

For each dividend you must hold a directors' meeting to "declare" it and keep minutes, "even if you're the only director." You also have to produce a dividend voucher for every payment showing the date, the company name, the names of the shareholders being paid, and the amount. A copy goes to the shareholder and a copy stays in the company's records. These are the documents that prove a payment was a lawful dividend and not something HMRC can recharacterise as salary or a loan.

Knowing your real distributable profit is the load-bearing part, because it is the ceiling on what you can lawfully pay. That comes down to clean bookkeeping: revenue in, allowable business expenses out, Corporation Tax provided for. Capture expenses as they happen so the profit figure your dividend is based on is the true one, and when the accountant prepares the return you can hand over tidy figures rather than a reconstruction.

Common mistakes with dividend tax

Using last year's rates. The basic and higher dividend rates rose on 6 April 2026. A calculator or spreadsheet still set to 8.75% and 33.75% understates the 2026/27 bill, by £790 on £40,000 of basic-and-higher-rate dividends in the example above.

Paying more than the available profit. A dividend that exceeds the company's retained and current profit is unlawful, and HMRC or the company may require the shareholder to repay it. Declare dividends against a profit figure you can evidence, not against the cash sitting in the bank, which may include money owed to HMRC.

Assuming the allowance still covers a big dividend. The dividend allowance is £500 for 2026/27, and it has shrunk in recent years, so a dividend level that once fell inside the tax-free band is now largely taxable. Check the current allowance before deciding what is "tax-free".

Forgetting dividends decide your band. Dividends stack on top of salary and other income. Even taxed at their own rates, they can lift your total income over £50,270 or £100,000 and change how the top slice is taxed, so a dividend can cost more than the headline basic rate suggests.

FAQ

How much can I take in dividends tax-free in 2026/27? The dividend allowance is £500, taxed at 0%. On top of that, any part of your £12,570 Personal Allowance not used by other income can also cover dividends tax-free. Beyond those, dividends are taxed at the dividend rates.

Do I pay National Insurance on dividends? No. Dividends do not attract National Insurance, whereas salary does. That difference is why many director-shareholders take a modest salary plus dividends, though the right mix depends on your wider position.

When did dividend tax rates go up? On 6 April 2026. The basic rate rose from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%, a two-percentage-point increase announced at the Autumn Budget 2025. The additional rate stayed at 39.35%.

Do I have to tell HMRC about dividends under £500? No. Dividends within the £500 allowance are taxed at 0% and do not need reporting. Once your taxable dividends go above the allowance, you report them through your tax code or Self Assessment.

How do I report dividends over £10,000? You must file a Self Assessment tax return. If you do not already file one, register for Self Assessment by 5 October following the end of the tax year in which you received the dividends.

Key takeaways

• For 2026/27 the first £500 of dividends is tax-free, and above the allowance the rates are 10.75% at basic rate, 35.75% at higher rate and 39.35% at additional rate.
• The basic and higher rates rose by two percentage points on 6 April 2026, adding £790 to the bill on £40,000 of basic-and-higher-rate dividends compared with last year.
• Dividends are the top slice of your income, so they can push your total earnings into a higher band even though they carry their own rates.
• Report taxable dividends to HMRC: up to £10,000 through your tax code or Self Assessment, over £10,000 through a Self Assessment return, registering by 5 October if you are new to it.
• A company can only pay dividends from available profit, with a directors' minute and a dividend voucher for each one, so keeping accurate records of income and expenses is what tells you how much you can lawfully draw.