Glossary · UK
What is Dividend Tax?
The tax charged on dividend income above the £500 tax-free allowance, at rates of 10.75%, 35.75% or 39.35% depending on your overall income band for 2026/27.
Full Definition
Dividend Tax is the Income Tax charged on dividend income received from shares, whether held directly, through a company you run, or via a fund outside a tax-free wrapper such as an ISA or pension. Dividends are treated as the "top slice" of your income for tax purposes -- stacked on top of your salary, pension and other non-savings income -- so the rate that applies to any given pound of dividend depends on which tax band it falls into once your other income is taken into account, not simply your total income level. The first £500 of dividend income each tax year is tax-free under the Dividend Allowance, regardless of your tax band, though it still counts towards determining which band your other dividends fall into. Above the allowance, dividends are taxed at 10.75% within the basic-rate band, 35.75% within the higher-rate band and 39.35% within the additional-rate band for 2026/27 -- each rate 2 percentage points higher than in 2025/26. Dividend Tax is particularly relevant to company directors and shareholders who pay themselves partly through dividends rather than salary, since dividends attract no National Insurance (unlike salary) but also do not count towards pension annual allowance relief or count as relevant earnings for pension contribution purposes. Dividends received within an ISA or pension remain entirely tax-free and do not use up the Dividend Allowance.
How Dividend Tax is calculated
Tax = (Dividends - 500) x rate, where rate depends on the band the dividend income falls into- 500
- Tax-free Dividend Allowance for 2026/27 (GBP), taxed at 0%.
- rate
- 10.75% basic rate, 35.75% higher rate, 39.35% additional rate (2026/27).
Worked example: A higher-rate taxpayer receiving GBP 10,000 of dividends pays 0% on the first GBP 500 and 35.75% on the remaining GBP 9,500 = GBP 3,396.25.