Dividend Tax Rates 2026: What Changed and What You Pay

The dividend tax rates 2026 changes took effect on 6 April 2026: the basic rate rose from 8.75% to 10.75%, the higher rate from 33.75% to 35.75%, and the additional rate stayed at 39.35%. The tax-free dividend allowance remains £500. For a typical director taking £40,000 in dividends, that is around £790 more tax a year.

The increase was announced in the Budget on 26 November 2025. It matters most to owners of small limited companies who pay themselves a low salary and take the rest as dividends. This guide sets out the rates, explains how dividends are taxed alongside salary, and works through real numbers so you can estimate your own bill.

Dividend tax rates 2026/27 at a glance

Tax band	Taxable income range (England, Wales, NI)	2025/26 dividend rate	2026/27 dividend rate
Personal Allowance	Up to £12,570	0%	0%
Dividend allowance	First £500 of dividends	0%	0%
Basic rate	£12,571 to £50,270	8.75%	10.75%
Higher rate	£50,271 to £125,140	33.75%	35.75%
Additional rate	Over £125,140	39.35%	39.35%

The 2026/27 figures match GOV.UK's "Tax on dividends" page. The Personal Allowance is reduced by £1 for every £2 of income over £100,000, so it disappears entirely at £125,140. Dividend income is taxed using these UK-wide bands even for Scottish taxpayers.

What the Budget 2025 changed

The Budget 2025 package on dividends, savings and property income included:

• Dividends: ordinary rate up 2 points to 10.75% and upper rate up 2 points to 35.75%, from 6 April 2026. Additional rate unchanged at 39.35%.
• Savings income: rates rise 2 points to 22%, 42% and 47% from 6 April 2027.
• Property income: new separate rates of 22%, 42% and 47% from 6 April 2027.
• Thresholds: the Personal Allowance and basic rate limit stay frozen until 5 April 2031, so the higher rate threshold remains £50,270.

The frozen thresholds matter as much as the rate rise. As profits and pay grow with inflation, more of your income drifts into the higher band, where dividends are taxed at 35.75%.

How dividends are taxed alongside salary

Dividend tax is not calculated in isolation. HMRC adds your dividends to your other income and treats dividends as the top slice. The order is:

1. Salary, self-employed profits, pensions and property income use up your Personal Allowance and bands first.
2. Savings interest comes next.
3. Dividends sit on top. Any part that still falls within your Personal Allowance is tax-free.
4. The next £500 of dividends is covered by the dividend allowance at 0%, but it still uses up band space.
5. The remainder is taxed at 10.75%, 35.75% or 39.35% depending on where it falls.

GOV.UK gives a simple example: someone with £29,570 in wages and £3,000 in dividends pays nothing on the first £500 of dividends and 10.75% on the remaining £2,500, which is £268.75.

Worked examples for limited company directors

These examples assume England, no other income, a director salary of £12,570 (which uses the whole Personal Allowance) and the 2026/27 rates. They compare the dividend tax rates 2026/27 bill with what the same dividends would have cost in 2025/26.

Example 1: £20,000 of dividends

All £20,000 falls in the basic rate band. The first £500 is tax-free. Tax: £19,500 times 10.75% equals £2,096.25. In 2025/26 it would have been £19,500 times 8.75%, or £1,706.25. Increase: £390.

Example 2: £40,000 of dividends

The basic rate band is £37,700 wide (£12,571 to £50,270). The first £37,700 of dividends sits in it: £500 at 0% and £37,200 at 10.75%, which is £3,999. The remaining £2,300 is in the higher band: £2,300 times 35.75% equals £822.25. Total: £4,821.25. In 2025/26 the same dividends would have cost £4,031.25. Increase: £790.

Example 3: £80,000 of dividends

Basic band as above: £3,999. The remaining £42,300 is taxed at 35.75%, which is £15,122.25. Total: £19,121.25, compared with £17,531.25 in 2025/26. Increase: £1,590. Total income here is £92,570, so the Personal Allowance is not yet tapered.

Dividends (with £12,570 salary)	Tax 2025/26	Tax 2026/27	Extra cost
£20,000	£1,706.25	£2,096.25	£390
£40,000	£4,031.25	£4,821.25	£790
£80,000	£17,531.25	£19,121.25	£1,590

Example 4: the whole picture for a one-person company

Imagine a consultancy company with £60,000 of profit before paying its director, and no associated companies.

• Director salary: £12,570. Employer National Insurance: 15% of £7,570, which is £1,135.50 (no Employment Allowance for a sole-director company). See our guide to employer National Insurance for the detail.
• Taxable profit: £60,000 minus £12,570 minus £1,135.50 equals £46,294.50.
• Corporation tax at the 19% small profits rate: about £8,796.
• Profit left to distribute: about £37,498.
• Dividend tax if all paid out: (£37,498 minus £500) times 10.75%, about £3,977.
• Director's take-home: £12,570 salary plus about £33,521 net dividends, roughly £46,091.

Under the old 8.75% rate, the dividend tax would have been about £3,237, so the change costs this director roughly £740 a year. Profits above £50,000 pay corporation tax at a higher marginal rate (25% at £250,000 and above, with marginal relief in between), which changes the numbers.

Sole trader vs limited company after the increase

Higher dividend tax narrows the gap between running a limited company and working as a sole trader, but it does not close it for everyone. Sole traders pay income tax and Class 4 National Insurance on all profits as they arise. Company owners pay corporation tax, then dividend tax, but can leave profits in the company, pay pension contributions from it and choose when to take income. Our full comparison of sole trader vs limited company covers the admin, liability and tax trade-offs. Remember that running a company now also means verifying your identity with Companies House.

If you are a contractor working through your own company, the off-payroll rules can also change the picture. If a client decides a role is inside the rules, fees are taxed much like salary. See our guide to IR35 and the off-payroll rules.

Ways to plan around the new rates

None of these are loopholes; they are standard choices to discuss with an accountant:

• Use the basic rate band each year. Taking dividends steadily up to the £50,270 threshold, rather than in one large year, can keep more income at 10.75% instead of 35.75%.
• Employer pension contributions. Contributions paid by the company are generally deductible for corporation tax and are not subject to dividend tax or National Insurance, within the usual pension rules.
• Retain profits. You do not have to extract everything. Profits left in the company are only taxed as dividends when paid out.
• Use ISAs for personal investments. Dividends from shares held in an ISA are tax-free.
• Check the paperwork. Dividends must come from distributable profits, with board minutes and dividend vouchers. Unlawful dividends can be treated as loans or salary.

Be cautious with arrangements that move dividend income to a spouse or family member. They can work in some cases, but there are anti-avoidance rules. Get advice first.

Reporting and paying dividend tax

Most directors report dividends on a Self Assessment tax return. For dividends received in 2026/27, the online return and payment are due by 31 January 2028, with payments on account possible on 31 January and 31 July. GOV.UK says you need to report dividends to HMRC if they exceed both your unused Personal Allowance and your dividend allowance.

Making Tax Digital for Income Tax uses self-employment and property income to decide who must join, not dividends. A director whose only income is salary and dividends is not brought in by dividends alone. Our guide to Making Tax Digital for Income Tax explains the thresholds.

Dividend tax rates 2026 for investors and side income

The same rates apply to anyone receiving dividends outside an ISA or pension, not just company directors. If you are employed on £45,000 and receive £2,000 of dividends from a share portfolio, your total income is £47,000, below the higher rate threshold. The first £500 is tax-free and the remaining £1,500 is taxed at 10.75%, which is £161.25. If your salary were £55,000, the same £1,500 would be taxed at 35.75%, or £536.25.

Moving shares into an ISA over time, using your partner's allowance where shares are genuinely owned by them, and holding income-producing investments in a pension are the usual ways to reduce this. Again, check the rules on gifts between spouses and the pension annual allowance before acting.

Pensioners and part-time workers with low other income can still receive a fair amount of dividends tax-free. Someone with a £9,000 pension and no other income has £3,570 of unused Personal Allowance. Dividends up to that amount are tax-free, the next £500 is covered by the dividend allowance, and only dividends above £4,070 are taxed at 10.75%. So £6,000 of dividends would create tax of £1,930 times 10.75%, which is about £207.48.

Shares held through a workplace or personal pension are not subject to dividend tax at all while the money stays inside the pension.

Common mistakes with dividends

• Forgetting the higher band. Under the dividend tax rates 2026/27, every pound above £50,270 of total income costs 35.75%, not 10.75%. Check your total income before declaring a large final dividend.
• Ignoring the £100,000 taper. Between £100,000 and £125,140 of income, the Personal Allowance is withdrawn, which creates a very high effective rate on dividends in that range.
• Paying dividends without profits. If the company does not have enough retained profit, the payment is not a lawful dividend.
• Not budgeting for the January bill. Dividend tax is not deducted at source. Put money aside each time you take a dividend, roughly 10.75% or 35.75% of it depending on your band.
• Treating drawings as dividends. Money taken from the company without a declared dividend may sit on a director's loan account, which has its own tax rules.
• Missing payments on account. A first year of significant dividends can bring a large January bill plus the first payment on account for the next year.

Keeping the company side clean

Your dividend capacity depends on profit, and profit depends on billing every piece of work and recording it properly. Know the difference between revenue and profit, review a profit and loss statement before you declare a dividend, and make sure invoices go out promptly so cash is there when you want to pay yourself.

This article is general information, not tax advice. Tax depends on your full circumstances, so check with a qualified accountant or tax adviser before deciding how to pay yourself.

Conclusion

The dividend tax rates 2026 rise means 10.75% in the basic band, 35.75% in the higher band and 39.35% at the top, with a £500 allowance. For most small company directors the extra cost is a few hundred to a couple of thousand pounds a year, so it is worth reviewing your salary, dividend and pension mix now. Keep the income flowing by invoicing promptly with our free UK invoice generator, and find more UK tax guides in our tax compliance section.