How much tax do I pay on dividends in 2026/27?

Full answer

Dividend tax rates rose by 2 percentage points from 6 April 2026, making dividend income noticeably more expensive for company owners and investors with substantial holdings outside tax-efficient wrappers like ISAs. **The 2026/27 rates and allowance** The Dividend Allowance remains £500 (down substantially from the £5,000 it once was several years ago), taxed at 0%. Above that, dividends are taxed at 10.75% (basic rate, up from 8.75%), 35.75% (higher rate, up from 33.75%), and 39.35% (additional rate, unchanged) -- the 2 percentage point rise on basic and higher rates was announced in the Autumn 2025 Budget. **How dividends stack on top of other income** Dividend income is treated as the top slice of your total income for tax purposes, taxed after your salary, self-employment profits, and savings interest have used up the lower bands -- this means dividends can be pushed into higher tax bands even if the dividend income alone would otherwise be modest, simply because of your other income. **Worked example -- company director** A director takes a £12,570 salary (using their full Personal Allowance, no Income Tax due) plus £40,000 in dividends. The first £500 of dividends is tax-free. The remaining £39,500 falls within the basic rate band (up to £50,270 total income), taxed at 10.75% = £4,246.25. **Worked example -- higher earner with dividends** Someone with a £60,000 salary (already in the higher rate band) receives an additional £10,000 in dividends. All £10,000 falls in the higher rate band (since their salary already exceeds £50,270), taxed at 35.75% after the £500 allowance: £9,500 × 35.75% = £3,396.25. **Why company owners often prefer dividends over salary** Despite the rate rise, dividends often remain more tax-efficient than an equivalent salary for company directors, because dividends do not attract National Insurance (either employee or employer), whereas salary above the relevant thresholds does -- the combined effect of Corporation Tax (already paid on company profits before dividends are distributed) plus dividend tax is often still lower than the combined Income Tax and NI on an equivalent salary, though the gap has narrowed with recent rate changes. **Scottish taxpayers** Dividend tax rates and the allowance are set UK-wide (not devolved to Scotland), so Scottish taxpayers pay the same dividend tax rates as the rest of the UK, even though their Income Tax bands on salary and other non-savings income differ. **Practical tip** Use the Dividend Tax calculator to model your specific combination of salary and dividend income, since the interaction between the two (and which tax bands each element falls into) is not always intuitive, particularly for company directors balancing salary and dividend extraction strategies.

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