Last updated: 18 October 2026
If you own a business in the UK, the dividend tax rates for 2026/27 directly affect how much of the money you take out of your company you actually keep. The basic and higher dividend rates both rose by two percentage points on 6 April 2026, so it is worth checking your figures.
This guide explains the dividend allowance, the 2026/27 dividend tax rates, how they apply in practice and how to take dividends properly.
In this article we cover:
- What Is the Dividend Allowance?
- Dividend Tax Rates for 2026/27
- Worked Examples
- Taking Dividends: The Procedure
- The Bottom Line
What Is Dividend Allowance?
Every individual gets a dividend allowance at the start of each tax year, whatever rate of tax they pay. For 2026/27 the dividend allowance is £500, unchanged since 2024/25.
The allowance works as a zero-rate band: the first £500 of dividends is taxed at 0%. But it still uses up part of the tax band the dividends fall into, so it can push other dividends into a higher band.
If your personal allowance of £12,570 has not been used by salary or other income, it can cover dividends too. Do not confuse either allowance with the £1,000 trading income allowance, which only applies to self-employed and casual income.
Explanation of Dividend Tax Rate:
Dividends above your personal allowance and dividend allowance are taxed at the following rates for 2026/27:
| Tax band | 2025/26 | 2026/27 |
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
Which rate applies depends on your total taxable income, with dividends treated as the top slice. In England, Wales and Northern Ireland for 2026/27:
- Income up to £12,570 is covered by the personal allowance, so no tax is due.
- Dividends falling within £12,571 to £50,270 of total income are taxed at the basic rate of 10.75%.
- Dividends falling within £50,271 to £125,140 are taxed at the higher rate of 35.75%.
- Dividends above £125,140 are taxed at the additional rate of 39.35%.
Scottish income tax bands do not apply to dividends, so Scottish taxpayers use these UK dividend bands. The personal allowance is reduced by £1 for every £2 of income over £100,000.
Worked Examples
Example 1: A director takes a salary of £12,570 and dividends of £37,700 in 2026/27. The salary uses the personal allowance. The first £500 of dividends is covered by the dividend allowance, and the remaining £37,200 is taxed at 10.75%, giving a dividend tax bill of £3,999.
Example 2: The same director takes dividends of £50,000 instead. £500 is tax-free, £37,200 is taxed at 10.75% (£3,999) and the remaining £12,300 falls into the higher rate band and is taxed at 35.75% (£4,397.25). The total dividend tax bill is £8,396.25.
Dividend tax is paid through Self Assessment, so tax on 2026/27 dividends is due by 31 January 2028. If your dividends are over £10,000 you must file a Self Assessment return. Below that, you can ask HMRC to collect the tax through your tax code instead.
Taking Dividends – The Procedure:
Dividends are usually more tax-efficient than extra salary because they carry no National Insurance. But they can only be paid out of retained profits, after Corporation Tax. To pay a dividend to directors or shareholders, the directors should hold a board meeting and record the decision in minutes. Dividends can be declared at any time during the financial year, as long as there are enough profits. For each payment, prepare a dividend voucher showing:
- Company Name
- Payment date
- Recipients’ names
- Amount of the dividend
Keep the vouchers and minutes with your company records. Paying a dividend without enough retained profits creates an illegal dividend, which may have to be repaid or treated as a director’s loan.
The Bottom Line:
Dividends remain a tax-efficient way to extract profits, but the 2026/27 rate rises and the small £500 allowance mean the gap between salary and dividends is narrower than it used to be. The right mix depends on your company’s profits, your other income and whether your company can claim the Employment Allowance, so professional advice can save you money.
Disclaimer: This article provides general information based on the 2026/27 dividend tax rates and does not replace professional advice.
