Tax on dividends in the UK for 2026/27 applies only once your dividends exceed the £500 dividend allowance. After that, you pay 10.75% if you are a basic rate taxpayer, 35.75% if you are a higher rate taxpayer, and 39.35% if you are an additional rate taxpayer.
Dividends held inside an ISA or pension are not taxed at all.
This guide covers how tax on dividends works, what you can receive tax-free and when you need to report your income to HMRC.
What Is Tax On Dividends?
A dividend is money that is paid out from profits to shareholders in a company. HMRC taxes this payout as personal income. However, it uses different rules and lower percentages than standard employment salary.
You do not pay National Insurance on dividend payments. But you pay tax on dividends if your total dividend earnings go over your tax-free allowances.
What Are the Dividend Tax Rates for 2026/27?
The tax on dividends depends on the Income Tax band your dividend income falls into.
Here is how 2026/27 compares with last year.
| Tax band | Total income | 2025/26 rate | 2026/27 rate |
| Basic rate | Up 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 basic and higher rates went up by 2 percentage points from 6 April 2026, after the Autumn Budget in November 2025. The additional rate stayed the same.
Consequently, the same dividend simply costs more than it did a year ago.
How Much Dividend Is Tax-Free in 2026/27?
The dividend allowance for 2026/27 is £500. Dividend income within this allowance is taxed at 0%, in addition to any dividend income covered by your unused Personal Allowance.
How much dividend is tax free in practice depends on your other income too. If dividends are your only income, you can receive £13,070 before paying anything. That is the £12,570 personal allowance plus the £500 dividend allowance.
If you earn a salary that already uses up your personal allowance, then only the £500 is tax-free.
The important thing to remember is that the £500 still counts toward your overall tax bands. It is taxed at 0%, but it fills up space in the band. This can push the next pound of dividends into a higher rate.
This means that any other income or dividends you earn above the allowance get pushed into higher tax brackets much faster.
How Do You Calculate Tax on Dividends?
To calculate tax on dividends, you have to start with all your income, not just the dividend payment.
- Add up your salary, pension and other taxable income.
- Add your dividend income.
- Apply your available Personal Allowance.
- Work out which tax bands the dividends fall into.
- Apply the £500 dividend allowance and calculate tax on the remaining dividends.
Tax on Dividend Example
Let’s look at a quick example for a company director in 2026/27 taking:
- £9,100 salary
- £35,000 dividends
Salary uses £9,100 of the £12,570 Personal Allowance. That leaves £3,470 of Personal Allowance free.
The remaining £3,470 of Personal Allowance covers part of the dividends. The £500 dividend allowance then covers a further £500, leaving £31,030 subject to dividend tax. Since this fits in the basic rate band, the tax is charged at 10.75%:
Tax Payable = £31,030 × 10.75% = £3,335.725
Do You Have To Report Tax On Dividends To HMRC?
You must report your dividend income to HMRC, but only if it exceeds your tax-free allowances. However, how you report it to HMRC totally depends on the dividend amount.
| Your dividends | What to do | Deadline |
| Within the £500 allowance | Nothing, unless you already file a tax return (then include them) | n/a |
| Over £500, up to £10,000, no tax return | Ask HMRC to change your tax code, or call the Income Tax helpline | After 5 April (end of the tax year) and before 5 October |
| Over £10,000 | Self Assessment tax return | Register by 5 October 2027, then file and pay online by 31 January 2028 (for 2026/27) |
If you use the tax code route, the tax is taken from your wages or pension. If you file a return, you report all your dividends on it, including small ones.
Are Dividends In An ISA or Pension Taxed?
No, dividends held inside an ISA or a pension are completely tax-free. Investment income within a pension is generally not subject to personal dividend tax while it remains invested in the pension.
So, you do not pay any Income Tax or Capital Gains Tax on growth or dividend payouts within these accounts. And you do not even need to report them to HMRC.
Do Scottish Taxpayers Pay Different Tax On Dividends?
No. Though Scotland has its own Income Tax bands for wages, GOV.UK says Scottish taxpayers pay the same tax on dividends as the rest of the UK. So the dividends tax rate is 10.75%, 35.75% and 39.35% wherever you live.
What Are Dividend Tax Rates?
The amount of tax you pay on dividends over your £500 allowance depends on which income tax band you fall into. You calculate this by adding your dividend income to all your other taxable income (like your salary or rental income).
From 6 April 2026, the government is increasing the tax rate for dividends UK by 2 percentage points.
| Tax Band | Total Income Threshold | 2026/27 Rate | From April 2026 |
| Basic Rate | £12,571 to £50,270 | 10.75% | 10.75% |
| Higher Rate | £50,271 to £125,140 | 35.75% | 35.75% |
| Additional Rate | Over £125,140 | 39.35% | 39.35% (Unchanged) |
Note for residents in Scotland: While Scotland has different tax bands for wages, dividend tax is reserved for the UK government. This means you use the same UK-wide thresholds (like the £50,270 higher-rate limit) and dividend rates as the rest of the UK.
How Much Can I Earn Before Paying Dividend Tax?
There are two main things to think about when we talk about dividend tax rates. The most important one to know at this point is that there is a “Dividend Allowance” of £500 in the UK (for the 2026/27 tax year). That simply means the first £500 of your dividend income is taxed at a 0% rate. While you don’t pay tax on this amount, it still counts as part of your total taxable income and can affect which tax band the rest of your income falls into.
On top of this, you have your Personal Allowance. For most people, this is £12,570. If your total income from all sources is less than this amount, you can use the remaining balance of your Personal Allowance to cover your dividends before you reach the dividend tax thresholds.
Once you go past these two safety nets, you move into the active dividend tax brackets UK and you start owing money to HMRC.
For example, if you earn a salary of £30,000 and receive £2,000 in dividends, you will not pay tax on the first £500 of those dividends. But you will owe tax on the remaining £1,500 based on the current tax rate for dividends UK. This tax must usually be paid to HMRC.
The Bottom Line
For 2026/27, tax on dividends is charged at 10.75% for basic-rate taxpayers, 35.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers.
The first £500 of dividend income is tax-free. Any unused Personal Allowance can also cover dividends, while dividends from shares held in an ISA are exempt.
How Accotax Can Help
At Accotax, we help individuals and company directors understand how tax on dividends applies to their income.
We can work out how much you owe, handle your Self Assessment registration and return, and tell you whether your salary and dividend mix still makes sense after the April rate rise.
If you need help understanding your dividend tax, get in touch with us to discuss your circumstances.
For more information, explore our full sitemap covering the latest accounting guides and tax advice for individuals, landlords, and businesses across the UK.
Disclaimer: All the information provided in this article on “Tax on Dividends: 2026/27 UK Guide to Rates and Allowances” including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
