Dividend tax went up on 6 April 2026. For the 2026/27 tax year the dividend ordinary rate is 10.75 per cent, the dividend upper rate is 35.75 per cent and the dividend additional rate is unchanged at 39.35 per cent. The dividend allowance stays at £500 — a tenth of what it was in 2016 — and dividends held inside an ISA or a pension are still not taxed at all.
If you hold shares or funds outside a tax wrapper, or you run a limited company and pay yourself partly in dividends, that rise has quietly made your income more expensive. This guide covers how much you pay, how dividends stack on top of your other income, how to report them, and the legitimate ways to bring the bill down.
Who actually pays dividend tax
Dividend tax is charged on money a company distributes to shareholders out of profits. You pay it on dividends from ordinary shares, investment trusts and equity funds — but only when those holdings sit outside a tax wrapper.
Most people never encounter it: HM Treasury notes that over 90 per cent of UK taxpayers do not receive taxable dividend income, largely because so much retail investing now happens inside ISAs and pensions.
Those who do pay fall into two camps: company directors who take a small salary and top it up with dividends, and investors holding shares or funds in a general investment account — usually because they have filled the ISA allowance, inherited a portfolio, or never got round to moving it.
That second group grows every year unnoticed: a portfolio yielding 3.5 per cent crosses £500 of dividends at roughly £14,000 invested.
The 2026/27 dividend tax rates and what changed in April
At the Budget on 26 November 2025 the government announced that the dividend ordinary rate would rise from 8.75 per cent to 10.75 per cent, and the upper rate from 33.75 per cent to 35.75 per cent, from April 2026. The dividend additional rate, and the dividend trust rate, were left alone at 39.35 per cent.
The change applies to distributions made on or after 6 April 2026: a dividend paid on 4 April 2026 was taxed at the old rates, one paid on 7 April at the new ones. There was no transitional relief.
| Band | Rate 2025/26 | Rate 2026/27 | Taxable income band (UK) |
|---|---|---|---|
| Dividend allowance | 0% on £500 | 0% on £500 | Applies wherever it falls |
| Dividend ordinary rate (basic) | 8.75% | 10.75% | Up to £37,700 |
| Dividend upper rate (higher) | 33.75% | 35.75% | £37,701 to £125,140 |
| Dividend additional rate | 39.35% | 39.35% | Over £125,141 |
Those bands come from the standard UK structure, unchanged for 2026/27: a £12,570 Personal Allowance, a £37,700 basic rate limit and the additional rate above £125,140. In cash terms, higher rate begins at £50,270 of total income.
Two related changes are coming but have not happened yet: higher savings rates and a separate set of property income rates both start in April 2027. Neither affects dividends.
The £500 dividend allowance and how it shrank
The dividend allowance is the slice of dividend income taxed at zero per cent. It arrived in April 2016 at £5,000, was reduced to £2,000 from 6 April 2018, and was cut again to £1,000 in April 2023 and then to £500 in April 2024.
HMRC estimated those final two cuts alone affected around 3.2 million people in 2023/24 and 4.4 million in 2024/25. The allowance has stayed at £500 since.
One detail catches people out: the allowance is a nil-rate band, not a deduction. The £500 still counts as part of your taxable income when HMRC decides which band the rest of your dividends fall into, so it creates no extra headroom.
The Personal Allowance works differently. Dividends falling inside your unused £12,570 Personal Allowance are genuinely untaxed and do not use up the £500, so someone with no other income can receive £13,070 of dividends tax free.
How dividends stack on top of your other income
This is the biggest source of confusion. Dividends are not taxed in isolation, and not first. Under section 16 of the Income Tax Act 2007, savings and dividend income are treated as the highest part of your total income, with dividends at the very top of the stack.
In practice HMRC lines up your salary, pension and self-employed profits first, applies the Personal Allowance to those, then drops your dividends into whatever band space is left. If your other income has already filled the basic rate band, every pound of dividend is charged at 35.75 per cent.
HMRC’s worked example for 2026/27 makes the mechanics clear: someone earning £29,570 in wages with £3,000 of dividends has taxable income of £20,000, pays 20 per cent on £17,000 of wages, nothing on £500 of dividends, and 10.75 per cent on the remaining £2,500.
The awkward cases straddle a threshold. Take a salary of £45,000 with £10,000 of dividends. Taxable non-dividend income is £32,430, leaving £5,270 of basic rate band. The £500 allowance uses part of it, £4,770 of dividends is taxed at 10.75 per cent and the remaining £4,730 at 35.75 per cent — £2,203.75 in total, on income a quick mental sum would have priced at basic rate.
What £10,000 of dividends costs at each rate
The table shows the tax on £10,000 of dividends for four taxpayers, each with the standard Personal Allowance and the first £500 covered by the dividend allowance.
| Other income | Dividends | Tax at 2025/26 rates | Tax at 2026/27 rates | Difference |
|---|---|---|---|---|
| £30,000 salary | £10,000 | £831.25 | £1,021.25 | +£190 |
| £45,000 salary (straddles the threshold) | £10,000 | £2,013.75 | £2,203.75 | +£190 |
| £60,000 salary | £10,000 | £3,206.25 | £3,396.25 | +£190 |
| £150,000 salary | £10,000 | £3,738.25 | £3,738.25 | No change |
Two things stand out. The extra cost of the 2026 rise is a flat two per cent of your taxable dividends — £190 on £9,500 — for basic and higher rate taxpayers alike. And the additional rate taxpayer pays nothing extra, because that rate was untouched.
Who this hits hardest
HMRC estimates that by 2029/30 around 3.9 million individuals, roughly 9 per cent of taxpayers, will pay more tax because of the dividend rate rise. A further 1.6 million people with dividend income will see no change, because their dividends sit within the allowance or above the additional rate threshold.
Company directors feel it most directly. The salary-plus-dividend structure works because dividends carry no National Insurance and come from profits already charged to corporation tax. Raising the dividend rates narrows that gap.
Investors are the quieter group. Fund distributions held outside a wrapper are taxable whether you spend or reinvest them, and whether the fund rose or fell.
How to report and pay dividend tax
A £10,000 dividing line decides the paperwork. Under HMRC’s reporting guidance, if your dividend income is up to £10,000 you can ask HMRC to collect the tax by changing your PAYE tax code, or ring the income tax helpline — no return needed unless you already file one.
Above £10,000 you must file a Self Assessment return. If you do not already file, register with HMRC by 5 October following the end of the tax year — so 5 October 2027 for dividends received in 2026/27.
Below the allowance there is nothing to report. Dividends inside an ISA or pension never need reporting, whatever the amount. If you already file a return for any other reason, all taxable dividends go on it regardless of size — use your platform’s annual consolidated tax certificate, which separates UK dividends, foreign dividends and interest.
Legal ways to cut a dividend tax bill
None of this is aggressive planning — these are the ordinary reliefs and wrappers the tax system provides.
Move holdings into an ISA
Dividends inside a stocks and shares ISA are free of income tax and never need declaring. The overall ISA allowance for 2026/27 is £20,000, and the stocks and shares limit is unaffected by the cash ISA changes due in April 2027.
If your shares already sit outside a wrapper, the “Bed and ISA” move sells them and immediately repurchases them inside the ISA, usually as a single instruction. The catch: the sale is a disposal for capital gains tax and the annual exempt amount is only £3,000, so a large accumulated gain can trigger a bill. Spreading it across several tax years solves that.
Use pension contributions
A personal pension contribution extends your basic rate band by the grossed-up amount, which can pull dividends sitting at 35.75 per cent back down to 10.75 per cent. Because dividends sit at the top of the stack, they are the first thing a contribution rescues. Relief runs to 100 per cent of earnings, subject to the annual allowance.
Spread holdings between spouses
Transfers between spouses and civil partners who live together are made on a no gain, no loss basis, so there is no capital gains tax on the transfer itself. Moving income-producing shares to a lower-rate partner uses their £500 allowance and basic rate band. The transfer must be outright — you cannot keep the income.
Know what you own: accumulation versus income units
Accumulation units pay no cash into your account — the income is reinvested inside the fund — but it is still taxable. HMRC treats the notional distribution as income in your hands and adds it to your capital gains base cost. Assuming no cash means no tax is a common and expensive mistake.
Time dividends across tax years
Directors control the timing of their own dividends. Splitting a large distribution across 5 April uses two years of allowances and two years of basic rate band. Investors have less control but can still choose when to switch funds.
Revisit the salary and dividend mix
With the ordinary rate now at 10.75 per cent, the low-salary-large-dividend arithmetic has shifted for owner-managers, particularly where extra salary would be deductible for corporation tax. That is company-specific and worth an accountant’s time rather than a rule of thumb.
- A platform’s consolidated tax certificate is the quickest way to see the dividends actually received.
- Whether that figure sits above or below £10,000 decides if Self Assessment applies.
- Filling the year’s ISA allowance, then planning a Bed and ISA move, is the usual first step for holdings outside a wrapper.
- Total income measured against £50,270 shows which band the dividends land in.
- For couples, it is worth knowing whether either £500 allowance is going unused.
- Accumulation and income units are both taxable, so knowing which you hold matters.
Not sure which band your dividends land in?
Work out your total income first — the band your dividends fall into depends entirely on everything else you earn.
Explore GetSmartSaver →Scotland, Wales and Northern Ireland
Scotland sets its own income tax bands, running from a 19 per cent starter rate to a 48 per cent top rate in 2026/27. Those rates do not apply to dividends: GOV.UK is explicit that Scottish taxpayers pay the same tax as the rest of the UK on dividends and savings interest.
That produces an odd result: a Scottish taxpayer earning £60,000 pays 42 per cent on the top slice of salary but 35.75 per cent on dividends, because dividends are always taxed using the UK bands. Welsh rates are set at the same level as England and Northern Ireland, so nothing differs for dividends outside Scotland.
If you are juggling dividends alongside salary, freelance income or rental profit, our planner works out where each slice lands.
Where to go next
Dividend tax rarely sits on its own. Planning a Bed and ISA move? Read our guide to capital gains tax in 2026 first, because the disposal is what creates the bill. Our comparison of the best stocks and shares ISA platforms covers which providers run Bed and ISA cheaply, and the side hustle tax rules explain how dividends and self-employed earnings interact on one return. To see how much band space your salary uses before the dividends land on top, run the numbers through our take-home pay calculator.
Frequently Asked Questions
What is the dividend tax rate in the UK for 2026/27?
For the 2026/27 tax year the dividend ordinary rate is 10.75 per cent, the dividend upper rate is 35.75 per cent and the dividend additional rate is 39.35 per cent. The ordinary and upper rates each rose by two percentage points on 6 April 2026, announced at the Budget on 26 November 2025. The additional rate was left unchanged.
Do I pay tax on the first £500 of dividends?
No. The dividend allowance covers the first £500 of dividend income at a zero per cent rate, and it applies to every taxpayer regardless of band. But it is a nil-rate band rather than a deduction, so that £500 still counts towards your taxable income when HMRC works out which band the rest of your dividends fall into.
Do I need to complete a tax return for dividend income?
Only above £10,000. If your dividend income is up to £10,000 you can ask HMRC to change your PAYE tax code or contact the income tax helpline instead. Above £10,000 you must file a Self Assessment return, and if you do not already file you must register by 5 October following the end of that tax year.
Are dividends inside an ISA or pension taxed?
No. Dividends paid on shares and funds held inside a stocks and shares ISA are free of income tax and never need to be declared to HMRC. The same applies to holdings inside a pension. The overall ISA allowance is £20,000 for 2026/27, and moving holdings into a wrapper is the simplest way to remove dividend tax for as long as they stay in the wrapper.
Do Scottish income tax rates apply to dividends?
No. Scotland sets its own bands for wages, pensions and most other taxable income, but GOV.UK confirms Scottish taxpayers pay the same tax as the rest of the UK on dividends and savings interest. So a Scottish higher rate taxpayer pays 35.75 per cent on dividends in 2026/27, not the 42 per cent Scottish higher rate.
How much tax will I pay on £10,000 of dividends?
It depends on your other income. A basic rate taxpayer earning a £30,000 salary would pay about £1,021 on £10,000 of dividends in 2026/27. A higher rate taxpayer on £60,000 would pay about £3,396. Both figures assume the standard Personal Allowance and the £500 dividend allowance covering the first slice.
Last reviewed: August 2026. Rates and allowances are those published by GOV.UK and HM Treasury for 2026/27 and can change at any fiscal event. This article is general information, not personal financial advice — your position depends on your own circumstances, so speak to a qualified accountant or adviser before acting.
