Dividend Tax Explained — UK Rates & Allowances 2026/27

Dividend tax is the tax you pay on income received as dividends from shares in a company. In the UK, dividend income is taxed at different rates to employment income, and benefits from a separate tax-free allowance.

If you're a company director taking dividends from your own limited company, or an investor receiving dividends from shares, you need to understand how dividend tax is calculated.

For 2026/27, the dividend allowance is £500. This means the first £500 of dividend income after any available Personal Allowance is taxed at 0%, while still using space in the relevant income-tax band.

After the dividend allowance, dividends are taxed at these rates depending on which income tax band they fall into:

• Basic rate: 10.75%
• Higher rate: 35.75%
• Additional rate: 39.35%

Your other income (salary, self-employment, etc.) is counted first against your personal allowance and tax bands. Dividends then fill the remaining band space.

Dividend tax bands are not separate — they sit on top of your other income. If your salary already uses up your basic rate band, your dividends will be taxed at higher rates.

Scenario: You have £30,000 salary and £15,000 in dividends in 2026/27.

Your salary uses £12,570 of personal allowance and £17,430 of the basic rate band. That leaves £20,270 of basic rate band for dividends.

Of your £15,000 dividends: the first £500 is covered by the dividend allowance (taxed at 0%). The remaining £14,500 falls within the basic rate band and is taxed at 10.75% = £1,558.75 dividend tax.

The tax year matters. In the site's published configuration, the 2025/26 dividend rates are 8.75% in the basic band, 33.75% in the higher band and 39.35% in the additional band. For 2026/27, the basic and higher rates are 10.75% and 35.75%, while the additional rate remains 39.35%.

The dividend allowance is £500 in both supported years. That allowance is a 0% rate on part of the dividend, not an amount removed before deciding which band the dividends occupy. A dividend paid in one tax year should not be estimated using another year's rates simply because the company accounts cover both periods.

The dividend calculator lets you switch between the two years. Keep evidence of the payment date and dividend paperwork, and use the tax year in which the dividend is treated as received for the personal-tax calculation.

A rate change does not itself decide whether salary or dividends are preferable. Employer NI, Corporation Tax, distributable reserves, other personal income and the value of pension or employment rights still belong in the comparison.

Dividends contribute to adjusted net income. When total adjusted net income exceeds £100,000, the standard Personal Allowance can fall by £1 for every £2 above that threshold and reach zero at £125,140.

This can affect more than the dividend line. If salary would otherwise use the Personal Allowance, a large dividend can withdraw some or all of that allowance and expose extra salary to Income Tax. A correct combined calculation therefore uses total income when determining the allowance instead of calculating salary and dividends as unrelated pots.

For band calculations, non-savings income such as salary is generally considered before savings and dividend income. That ordering determines how much basic-rate or higher-rate band remains when dividends are added.

The £500 dividend allowance is a zero-rate band, not a deduction from income. Dividends covered by it can still use tax-band space. The Personal Allowance may cover dividend income if it has not already been used, but it can be reduced when adjusted net income exceeds £100,000.

This is why two people receiving the same dividend can owe different amounts: salary, pension, property, savings and other dividend income can place the dividend in different bands.

Whether you need to tell HMRC depends on the amount of dividend income and your wider tax position. HMRC may adjust a tax code, ask for payment through Self Assessment, or provide another reporting route. Keep dividend vouchers and records even when no tax is due.

A company can pay dividends only from available distributable profits and should keep the required company records. The personal dividend-tax calculation on this site does not decide whether a company lawfully has profits available for distribution.

Check current GOV.UK reporting guidance if dividends are material, if you already file a tax return, or if your income crosses a band or Personal Allowance threshold.

If you run a limited company, you can choose to pay yourself through salary, dividends, or a mix. Each has different tax consequences — salary attracts National Insurance but is a deductible company expense, while dividends avoid NI but are paid from post-tax profits.

Many directors compare a combination, but there is no universal best split. Our salary vs dividends comparison explains the key trade-offs using current rates.

A personal dividend-tax estimate starts after the company has established that a dividend can be paid. Salary and employer National Insurance can generally reduce company profit before Corporation Tax, while dividends are paid from post-tax distributable profit and do not reduce Corporation Tax.

For the simplified twelve-month single-company case, Corporation Tax may use the 19% small-profits rate up to £50,000, the 25% main rate at £250,000 or more, or marginal relief between those limits. Associated companies, short accounting periods and augmented profits can change the limits or relief.

The director salary and dividend calculator traces that company layer and then estimates personal take-home. It assumes all remaining current-period post-tax profit is legally distributable; it cannot inspect accounts, retained losses, cash, solvency or company paperwork.

• Treating the £500 dividend allowance as a deduction that does not occupy tax-band space.
• Applying one dividend rate to the whole payment when it crosses from the basic band into the higher band.
• Ignoring salary or other income that has already used the Personal Allowance and basic-rate band.
• Calculating personal dividend tax without first checking that the company has sufficient distributable profit.
• Using a 2025/26 rate for a 2026/27 payment, or assuming a company's accounting year decides the individual's tax year.

Keep the dividend voucher, meeting or written decision, accounts evidence and payment record required for the company. Keep personal records showing the amount and date. The calculator explains the arithmetic; it does not create or validate those records.

Dividend tax calculations can be straightforward for simple situations, but complexity increases quickly with multiple income sources, IR35 considerations, or cross-border income.

If you're making significant financial decisions based on dividend tax, it's worth consulting a qualified accountant or tax adviser who can consider your full circumstances.