The Dividend Tax Rise 2026/27: What the 2 Percentage Point Increase Means in Practice
From 6 April 2026, dividend tax rates rose 2 percentage points — basic rate from 8.75% to 10.75%, higher rate from 33.75% to 35.75%. Worked example showing the exact extra cost for a company director.
What changed on 6 April 2026
Announced at the Autumn 2025 Budget, dividend tax rates rose by 2 percentage points across the basic and higher rate bands from the start of the 2026/27 tax year:
| 2025/26 | 2026/27 | Change | |
|---|---|---|---|
| Dividend allowance | £500 | £500 | No change |
| Basic rate | 8.75% | 10.75% | +2pp |
| Higher rate | 33.75% | 35.75% | +2pp |
| Additional rate | 39.35% | 39.35% | No change |
Dividend Tax Calculator
Calculate tax on dividends received from UK companies for 2025/26.
Open Dividend Tax calculatorWorked example: a company director taking £40,000 in dividends
A company director, whose salary already uses up their Personal Allowance and part of the basic rate band, takes £40,000 in dividends for the year, all falling within the basic-rate dividend band.
- Dividend allowance: £500 (tax-free)
- Taxable dividends: £40,000 − £500 = £39,500
- Tax at 2026/27 rate (10.75%): £39,500 × 10.75% = £4,246.25
- Tax at 2025/26 rate (8.75%), for comparison: £39,500 × 8.75% = £3,456.25
- Extra tax from the rate rise: £4,246.25 − £3,456.25 = £790
Worked example: a higher-rate taxpayer with £30,000 of dividends
A higher-rate taxpayer takes £30,000 in dividends, all falling within the higher-rate dividend band.
- Dividend allowance: £500
- Taxable dividends: £30,000 − £500 = £29,500
- Tax at 2026/27 rate (35.75%): £29,500 × 35.75% = £10,546.25
- Tax at 2025/26 rate (33.75%), for comparison: £29,500 × 33.75% = £9,956.25
- Extra tax from the rate rise: £10,546.25 − £9,956.25 = £590
Why this matters most for small business owners
The classic "small salary plus dividends" approach used by many limited company directors — paying a low salary up to the National Insurance threshold, then extracting most profit as dividends — becomes relatively less advantageous with each dividend rate rise, narrowing the gap between this approach and simply taking a higher salary. It doesn't eliminate the advantage (dividends still avoid National Insurance entirely, unlike salary), but the margin has now been reduced twice: once when rates first rose 1.25 percentage points in 2022 (later partially reversed), and now again by 2 percentage points from April 2026.
self-employed-tax-ukSheltering dividends from the rise
Dividends received on shares held within an ISA or a pension remain completely tax-free, regardless of this rate rise — making tax-efficient wrappers relatively more valuable for anyone holding dividend-paying investments outside of one, particularly as the gap between wrapped and unwrapped dividend taxation continues to widen.
Bottom line
The 2 percentage point dividend tax rise from April 2026 adds a straightforward £20 per £1,000 of basic or higher-rate dividends compared with the previous year — a modest-sounding change that adds up meaningfully for company directors and shareholders who rely on significant dividend income, and strengthens the case for using ISA and pension wrappers wherever possible.
Sources
- GOV.UK: Tax on dividends
- GOV.UK: Rates and allowances: Income Tax
Frequently asked questions
How much did dividend tax rates rise in 2026/27?
From 6 April 2026, dividend tax rates rose by 2 percentage points at both the basic and higher rate: the basic rate rose from 8.75% to 10.75%, and the higher rate rose from 33.75% to 35.75%. The additional rate stayed unchanged at 39.35%.
What is the dividend allowance in 2026/27?
The dividend allowance remains £500 in 2026/27 — the amount of dividend income taxed at 0% before the basic, higher or additional dividend rates apply to the rest.
How much extra tax does the rise cost a basic-rate taxpayer?
For every £1,000 of dividends taxed at the basic rate, the rise costs an extra £20 (2 percentage points × £1,000) compared with the 2025/26 rate, on top of whatever basic-rate dividend tax was already due.
Who is most affected by the dividend tax rise?
Company directors and shareholders who pay themselves partly through dividends — a common approach for small business owners and contractors operating through a limited company — are the group most directly affected, since dividend income is central to how they typically extract profit from their company.
Does the dividend tax rise affect ISA or pension dividends?
No — dividends received within an ISA or a pension remain completely tax-free regardless of this rate rise, which is one reason holding dividend-paying shares inside a tax wrapper has become relatively more valuable since the increase.
Why did the government raise dividend tax rates?
The 2 percentage point rise, announced at the Autumn 2025 Budget, was framed as part of a wider package to raise revenue while narrowing the tax gap between employment income and dividend income, since dividends have historically been taxed more lightly than salary once National Insurance is taken into account.
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