Comparison · Dividend Tax · 2026/27
Dividend Tax: Higher Rate vs Additional Rate 2026/27 (35.75% vs 39.35%)
Both the higher and additional dividend tax rates rose or stayed fixed at different points in recent Budgets -- and the gap between them (3.6 percentage points) matters a lot for director-shareholders near the £125,140 threshold. This guide compares both rates for 2026/27.
TL;DR -- 2026/27 Dividend Tax Key Figures
- • Dividend allowance: £500 (tax-free, regardless of band)
- • Basic rate: 10.75%
- • Higher rate: 35.75% (income £37,700–£125,140)
- • Additional rate: 39.35% (income above £125,140)
Higher Rate vs Additional Rate: Head-to-Head
| Feature | Higher Rate (35.75%) | Additional Rate (39.35%) |
|---|---|---|
| Income band | £37,700 – £125,140 total income | Above £125,140 total income |
| Changed at Autumn Budget 2025? | Yes — rose from 33.75% | No — unchanged |
| Applies to personal allowance taper zone? | Yes — £100,000–£125,140 overlap | No — PA already fully withdrawn |
| Dividend allowance | £500 tax-free | £500 tax-free |
Worked Example: £150,000 Total Income, £60,000 Dividends
A director-shareholder has £90,000 of other income (salary, rental, etc.) plus £60,000 of dividends -- total income £150,000. The dividends stack on top of the £90,000 and straddle the higher-rate and additional-rate bands.
| Dividend slice | Amount | Rate | Tax |
|---|---|---|---|
| £500 dividend allowance | £500 | 0% | £0 |
| £90,500 to £125,140 (higher rate) | £34,640 | 35.75% | £12,383.80 |
| £125,140 to £150,000 (additional rate) | £24,860 | 39.35% | £9,782.51 |
| Total dividend tax | £22,166.31 | ||
Out of £60,000 of dividends, £22,166.31 goes in dividend tax -- an effective rate of about 37% across the whole dividend, reflecting the blend of the higher and additional rate bands this income straddles. This example ignores income tax on the £90,000 of other income, which is calculated separately.
Frequently Asked Questions
Frequently Asked Questions
What is the higher-rate dividend tax rate for 2026/27?
Higher-rate dividend tax is 35.75% for 2026/27, applying broadly to dividend income within the higher-rate income tax band (total income £37,700-£125,140 above the personal allowance). This rose 2 percentage points from 33.75% at Autumn Budget 2025, effective 6 April 2026.
What is the additional-rate dividend tax rate for 2026/27?
Additional-rate dividend tax is 39.35% for 2026/27, applying to dividend income above £125,140 total income. Unlike the basic and higher rates, this was not increased at Autumn Budget 2025.
How does the £500 dividend allowance interact with these rates?
The first £500 of dividend income each tax year is tax-free regardless of band, but it still counts towards determining which band the remaining dividend income falls into.
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How is it decided which rate applies to a dividend?
Dividends are treated as the 'top slice' of total income, stacked on top of salary, pension and other non-dividend income -- the rate is determined by which band the cumulative total falls into once dividends are added on top.
Why did the additional rate stay unchanged while others rose?
Dividend tax rates are set independently of income tax rates. Autumn Budget 2025 raised the basic and higher dividend rates by 2 percentage points but left the additional rate at 39.35% -- a specific policy choice, not an automatic link.
How can a director-shareholder reduce the impact of higher/additional dividend rates?
Common approaches: spreading dividends across tax years, using a spouse's unused basic-rate band where appropriate, maximising pension contributions to reduce adjusted net income, and using ISAs for other investments. Professional tax advice is recommended.
Do Scottish taxpayers pay dividend tax at different rates?
No -- dividend tax is UK-wide, not devolved. Scottish taxpayers pay the same 8.75%/35.75%/39.35% rates as the rest of the UK, and band thresholds use the rest-of-UK income tax bands, not the Scottish ones.
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Disclaimer: This comparison is for general information based on 2026/27 dividend tax rates and HMRC guidance. Tax planning strategies involving dividends carry risk and complexity -- consult a qualified accountant or tax adviser before making decisions based on your own income and shareholding structure.