- For 2026/27, the dividend allowance is £500, meaning you pay no tax on the first £500 of dividend income each year.
- Dividend tax rates depend on your income tax band: 8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate taxpayers.
- Dividends held inside a Stocks and Shares ISA or pension are completely free from dividend tax, regardless of the amount.
Tax on dividends in the UK in 2026/27 is charged at rates of 8.75%, 33.75%, or 39.35% depending on your income tax band, with the first £500 of dividend income each year tax-free. Above that allowance, the rate you pay depends on where your dividends sit within your overall income.
If you’re a limited company director taking dividends as part of your salary strategy, understanding these rates is essential for staying tax-efficient. Sleek’s limited company accounting service helps directors structure their income to keep their tax bill as low as legally possible.
What is dividend tax?
Dividend tax is the tax you pay on income received from shares in a company. This applies whether you’re a shareholder in your own limited company, a passive investor, or both.
Dividends are not subject to National Insurance, which is one reason they’re a popular way for directors to take income. However, they are subject to income tax above the annual dividend allowance.
What is the dividend allowance for 2026/27?
The dividend allowance is £500 for 2026/27. This means the first £500 of dividend income you receive each year is tax-free, regardless of which tax band you’re in.
The allowance has fallen significantly in recent years. It stood at £2,000 in 2022/23, dropped to £1,000 in 2023/24, and was cut again to £500 from April 2024. There are no announced changes for 2026/27.
What are the dividend tax rates for 2026/27?
Once you’ve used your £500 allowance, dividend tax is charged at one of three rates depending on your income tax band.
|
Tax band |
Taxable income |
Dividend tax rate |
|
Basic rate |
Up to £50,270 |
8.75% |
|
Higher rate |
£50,271 to £125,140 |
33.75% |
|
Additional rate |
Over £125,140 |
39.35% |
These rates apply to England, Wales, and Northern Ireland. Scottish taxpayers follow the same dividend tax rates, but their income tax bands differ. You can check the Scottish tax bands to see how this affects your position.
Your personal allowance (£12,570 for 2026/27) and dividend allowance both reduce the amount of dividend income that is actually taxable.
How is dividend tax calculated?
Dividends are treated as the top slice of your income. This means HMRC stacks your income in a specific order when working out what you owe:
- Salary, pension, and other earned income
- Savings income
- Dividend income
Because dividends sit at the top, they are taxed at the rate that applies to the highest part of your income. If your salary already takes you into the higher rate band, your dividends will be taxed at 33.75%, even if the dividend amount itself is relatively small.
Your personal tax allowance of £12,570 applies first, followed by the £500 dividend allowance. Only what remains is taxable.
Worked example: how much dividend tax will I pay?
Here’s a practical example using a common director salary and dividend combination for 2026/27.
Setup: Director takes a salary of £12,570 (equal to the personal allowance) and dividends of £40,000.
|
Amount |
|
|
Salary |
£12,570 |
|
Dividends |
£40,000 |
|
Personal allowance used by salary |
£12,570 |
|
Dividend allowance |
£500 |
|
Taxable dividends |
£39,500 |
|
Tax at 8.75% (basic rate) |
£3,456.25 |
In this scenario, all taxable dividends fall within the basic rate band, so the effective rate on total dividend income is around 8.6%. This is significantly lower than the equivalent income tax and National Insurance on the same amount taken as salary.
If your dividends push you into the higher rate band even partially, the jump to 33.75% is significant. Planning your salary and dividend split carefully each year can make a meaningful difference to your tax bill.
Do I pay tax on dividends in an ISA or pension?
No. Dividends received inside a Stocks and Shares ISA or a pension (such as a SIPP) are completely free from dividend tax, regardless of the amount.
This makes ISAs and pensions the most straightforward way to shelter dividend income. The annual ISA allowance is £20,000 per person. Pension contributions are subject to separate annual allowance rules but offer additional tax relief on top.
Dividends received in a general investment account (GIA) outside these wrappers are fully subject to the rules above.
What about reinvested dividends?
Reinvested dividends are still taxable. If you hold accumulation funds outside an ISA or pension, the fund automatically reinvests dividend income rather than paying it out as cash. HMRC still treats this as taxable dividend income in the year it arises.
This catches many investors off guard. Even though you never see the money in your bank account, you may still owe tax on it. Check your fund documentation to understand whether you hold income or accumulation units, and keep records of any reinvested amounts for your self-assessment tax return.
What if I’m a Scottish taxpayer?
Scottish taxpayers pay the same dividend tax rates as the rest of the UK. The distinction matters at the income level, not the dividend rate level.
Because Scotland has different income tax bands to the rest of the UK, the point at which your dividends tip into a higher dividend tax rate may differ. A Scottish taxpayer paying the intermediate rate on their salary is still taxed at 8.75% on dividends that fall within the basic rate band as defined by HMRC for dividend purposes.
This interaction can be confusing. Our guide toScottish tax bands sets out how the two systems sit alongside each other.
How do I pay dividend tax to HMRC?
If you owe dividend tax, you report and pay it through self-assessment. The deadline for online returns is 31 January following the end of the tax year.
If the dividend tax you owe is below £10,000, HMRC may collect it through an adjustment to your PAYE tax code instead, provided you’re also employed or receiving a pension. You’ll need to check your tax code to confirm this has been applied correctly.
Directors drawing dividends from their own company will almost always need to complete a self-assessment return. Our guide tofiling a self-assessment tax return walks through the process step by step.
Can I reduce my dividend tax bill?
Yes. There are several legitimate ways to reduce how much dividend tax you pay.
- Use your ISA allowance. Moving investments into a Stocks and Shares ISA shelters future dividend income from tax entirely.
- Contribute to a pension. Pension contributions reduce your adjusted net income, which can pull dividends back into a lower tax band.
- Split income with a spouse or civil partner. If your spouse has unused allowances or sits in a lower tax band, transferring shares to them may reduce the household tax bill. This must be a genuine transfer of ownership.
- Time your dividends carefully. Taking dividends across two tax years rather than one can make better use of the annual £500 allowance and keep income within a lower band.
- Optimise your salary and dividend split. For directors, the balance between salary and dividends has a direct impact on total tax and National Insurance. Our guide to tax-efficient ways to withdraw money from your company covers this in detail.
How Sleek helps with dividend tax
Getting your salary and dividend split right is one of the most valuable things a good accountant can do for a limited company director. Sleek’s fixed-fee accounting service covers exactly this, from structuring your income efficiently each year to filing your self-assessment return on time.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on tax on dividends UK
What is the dividend allowance in the UK?
The dividend allowance is the amount of dividend income you can receive each year before paying tax. For 2026/27, the allowance is £500. It applies to everyone, regardless of which income tax band they’re in. Dividends within this threshold are tax-free, but anything above it is taxed at your applicable dividend rate. The allowance has fallen sharply in recent years, down from £2,000 in 2022/23.
How are dividends taxed in the UK?
Dividends are taxed after your salary and other income, making them the top slice of your total income. You pay no tax on the first £500 (the dividend allowance). Above that, the rate depends on your income tax band: 8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate taxpayers. Dividends are not subject to National Insurance, which makes them more tax-efficient than salary for many directors.
How do dividends differ from salary for tax?
Salary is subject to income tax and National Insurance contributions from both you and your employer. Dividends are subject to income tax only, at lower rates, and attract no National Insurance. For a basic rate taxpayer, the effective rate on dividends is 8.75% compared to a combined income tax and employee National Insurance rate that can exceed 32% on salary. Our guide to UK tax brackets explains how the two sit alongside each other.
How much dividend can I take tax-free?
You can take up to £500 in dividends tax-free each year through the dividend allowance. On top of this, if you have unused personal allowance (£12,570 for 2026/27) and no other income using it up, dividends can also fall within that threshold tax-free. A director taking a salary equal to the personal allowance and dividends up to £500 on top would pay no tax on those dividends at all.
How does dividend tax affect company directors?
Directors who pay themselves through a combination of salary and dividends need to account for dividend tax in their annual self-assessment return. The salary and dividend split affects both the amount of tax owed and when it is due. Dividend tax is not deducted at source, so directors must set aside funds to cover their January self-assessment payment. Getting the split right each year is one of the most impactful decisions a director can make for their overall tax bill. Sleek’s guide to tax-efficient ways to withdraw money from your company covers the key considerations.
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Can I split dividends with my spouse to save tax?
Yes, provided the share transfer is genuine. If your spouse or civil partner holds shares in your company, they are entitled to receive dividends on those shares. If they pay tax at a lower rate than you, or have unused allowances, this can reduce the overall household tax bill. HMRC’s settlements legislation applies here, so the arrangement must reflect a real transfer of ownership and not simply be a mechanism to redirect your own income. Take professional advice before restructuring shareholdings for this purpose.
How to file self-assessment for dividends UK?
Dividend income is reported through a self-assessment tax return. You’ll need to declare the total dividends received in the tax year, including amounts within the £500 allowance. The deadline for filing online is 31 January following the end of the tax year, with any tax owed due on the same date. If your dividend tax liability is under £10,000, HMRC may collect it via your tax code instead. Our guide to filing a self-assessment tax return walks through each step of the process.
