Last updated: 14 October 2026
How can you reduce dividend tax in the UK?
In 2026/27, dividends above the £500 allowance are taxed at 10.75%, 35.75% or 39.35%. The main legal ways to reduce the bill are: hold shares in an ISA, where dividends are tax-free; take company profits as employer pension contributions instead; share ownership with a spouse who pays tax at a lower rate; use your Personal Allowance and basic-rate band; and time dividends across tax years.
2026/27 dividend tax rates
| Band | Rate on dividends |
| Dividend allowance (first £500) | 0% |
| Basic rate (up to £50,270 total income) | 10.75% |
| Higher rate (up to £125,140) | 35.75% |
| Additional rate | 39.35% |
Dividends sit on top of your other income. The Personal Allowance covers them only if your other income doesn’t use it up.
1. Use ISAs for investments
Shares and funds held in a stocks and shares ISA pay no dividend tax or CGT. The ISA allowance is £20,000 a year. Transferring existing shares into an ISA (“Bed and ISA”) means selling them first, so watch for CGT.
2. Employer pension contributions (company owners)
A limited company can pay into your pension directly. The contribution is deductible for corporation tax, and there is no income tax, dividend tax or NIC on it. The annual allowance is £60,000. For directors who don’t need the money now, this is often the most efficient route.
3. Spread shares with your spouse
If your spouse or civil partner pays less tax, they can own shares and receive dividends directly. The shares must be an outright gift of ordinary shares with full rights. Otherwise, the settlements rules can tax the dividends on you.
4. Plan the timing
Spread dividends across two tax years to use two dividend allowances and two basic-rate bands. Avoid pushing your income above £100,000, where you lose £1 of Personal Allowance for every £2. Watch the £60,000 High Income Child Benefit Charge threshold too.
5. The right salary and dividend mix
A small salary uses your Personal Allowance more efficiently than dividends do. See the most tax-efficient way to pay yourself.
6. Other options
- Gift Aid donations extend your basic-rate band
- VCT shares pay tax-free dividends (with risks)
- Repay money the company owes you, which isn’t taxed
Example
A director who takes £40,000 of dividends on top of a £12,570 salary pays 10.75% on £37,200 (after the £500 allowance and up to the £50,270 limit) and 35.75% on £2,300. That comes to about £4,821. Paying £10,000 of that into a pension instead reduces dividend tax by about £1,650 and saves corporation tax too.
Pitfalls when cutting dividend tax
Dividends can only be paid from retained profits. Paying more than the company has available creates an illegal dividend that may have to be repaid. Hold a board meeting, keep minutes and issue a voucher for each payment. Shares given to a spouse must carry real rights, and the settlements rules can apply if the transfer is just a right to income. Remember too that dividends count towards adjusted net income, so a large payment can trigger the High Income Child Benefit Charge or the loss of your Personal Allowance above £100,000.
Frequently asked questions
Is the dividend allowance per person?
Yes, £500 each.
Do I need to report dividends under £500?
Not unless you already file a tax return. If you do, include them.
Can my children own shares?
Dividends on shares gifted by a parent to a minor child are taxed on the parent if they are over £100 a year.
Is it legal to pay dividends to my spouse?
Yes, if they own real shares outright.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with reducing your dividend tax. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
