For 2026 to 2027, dividends above the £500 dividend allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The ordinary and upper rates each rose by 2 percentage points on 6 April 2026; the additional rate did not change. The rate you pay depends on where your dividends fall once your other income has used up the Personal Allowance and the bands, because dividends are always taxed as the top slice of income.
What are the dividend tax rates for 2026 to 2027?
Section 8 of the Income Tax Act 2007 sets four dividend rates. The changes for 2026 to 2027 were announced at Budget 2025 on 26 November 2025.
| Band | 2025 to 2026 | 2026 to 2027 |
|---|---|---|
| Dividend allowance (dividend nil rate) | 0% on first £500 | 0% on first £500 |
| Basic rate band (dividend ordinary rate) | 8.75% | 10.75% |
| Higher rate band (dividend upper rate) | 33.75% | 35.75% |
| Additional rate band (dividend additional rate) | 39.35% | 39.35% |
The government’s technical note confirms the dividend allowance stays at £500 and that the dividend rates apply UK wide. HMRC’s guidance for Scottish and Welsh taxpayers says they pay the same tax as the rest of the UK on dividends, so Scottish income tax rates and bands do not apply to dividend income. A dividend paid on or before 5 April 2026 is taxed at the 2025 to 2026 rates. For a summary of rates alongside the allowance, see dividend allowance and tax rates.
What counts as dividend income?
Section 19 of the Income Tax Act 2007 defines dividend income to include dividends from UK resident companies, dividends from non UK resident companies, stock dividends from UK resident companies, and the release or writing off of a loan to a participator in a close company. HMRC’s tax return notes also treat distributions from authorised unit trusts, open ended investment companies and investment trusts as dividends, including amounts automatically reinvested in accumulation units.
Dividends from shares held in an ISA are not taxed and do not use any allowance or band; see ISA tax rules.
How do you work out which band your dividends fall in?
For 2026 to 2027 the standard Personal Allowance is £12,570. Taxable income after allowances is taxed in the basic rate band up to £37,700, the higher rate band from £37,701 to £125,140 and the additional rate band above that. Section 16 of the Income Tax Act 2007 treats dividend income as the highest part of total income, above wages, pensions, profits, rent and interest. So the method is:
- Add up all your income, including the dividends.
- Take off the Personal Allowance, reduced if your adjusted net income is over £100,000.
- Fill the bands from the bottom with non savings income, then savings income, then dividends.
- Apply 0% to the first £500 of dividends wherever they sit, then the dividend rate for each band the rest falls in.
The full ordering rules, including how interest and dividends interact, are in how savings and dividend income stack. The rest of this page works through each band in turn.
How are dividends taxed when they are your only income?
You do not pay tax on dividend income that falls within your Personal Allowance. Illustration only. Ellen has no salary and receives dividends of £30,070 in 2026 to 2027.
- £12,570 is covered by her Personal Allowance.
- £500 is taxed at 0% under the dividend allowance.
- £17,000 falls in the basic rate band at 10.75%, which is £1,827.50.
Her total income tax is £1,827.50, an average rate of about 6% on what she received.
What happens in the basic rate band?
HMRC’s own example for 2026 to 2027: someone earns £29,570 in wages and receives £3,000 of dividends, so total income is £32,570 and taxable income after the £12,570 Personal Allowance is £20,000. They pay 20% on £17,000 of wages, nothing on £500 of dividends and 10.75% on the remaining £2,500 of dividends. The dividend tax is £268.75.
What happens when dividends cross into the higher rate band?
Illustration only. Tom has a salary of £44,770 and dividends of £15,000. After his Personal Allowance, £32,200 of salary is taxable, leaving £5,500 of the £37,700 basic rate band.
| Slice of dividends | Amount | Rate | Tax |
|---|---|---|---|
| Dividend allowance | £500 | 0% | £0 |
| Rest of the basic rate band | £5,000 | 10.75% | £537.50 |
| Higher rate band | £9,500 | 35.75% | £3,396.25 |
| Total | £15,000 | £3,933.75 |
Notice that the £500 taxed at 0% still used up £500 of the basic rate band. The allowance is a rate, not a deduction, which is explained in the £500 dividend allowance.
What happens above £100,000 and above £125,140?
The Personal Allowance taper
Your Personal Allowance goes down by £1 for every £2 of adjusted net income above £100,000, and dividends count towards adjusted net income. Illustration only. Nadia has a salary of £100,000 and dividends of £20,000. Her adjusted net income is £120,000, so her Personal Allowance falls by £10,000 to £2,570.
- Her dividends all fall in the higher rate band: £500 at 0% and £19,500 at 35.75%, which is £6,971.25.
- Losing £10,000 of Personal Allowance means £10,000 more of her salary is taxed at 40%, which costs £4,000.
The dividends add £10,971.25 to her bill, close to 55% of the £20,000. More on this trap is in Personal Allowance tapering.
The additional rate band
Illustration only. Mark has a salary of £150,000, so he has no Personal Allowance and his salary already reaches the additional rate band. Dividends of £10,000 are taxed as £500 at 0% and £9,500 at 39.35%, which is £3,738.25.
Can the Personal Allowance be used against dividends instead?
For 2026 to 2027, section 25(2) of the Income Tax Act 2007 requires allowances to be deducted in the way that gives the greatest reduction in tax. Usually that means against salary or pension, but where someone lives mainly on interest and dividends it can be better to set the allowance against dividends. The Budget 2025 technical note says this changes from 2027 to 2028: the Personal Allowance and other reliefs will have to be set against income that is not property, savings or dividend income first.
How is the tax collected, and what goes wrong?
If your taxable dividends are £10,000 or less you can ask HMRC to collect the tax through your tax code or report it on a tax return; above £10,000 you need a Self Assessment return. The details are in declaring dividends to HMRC. Common mistakes are:
- using last year’s rates for dividends paid after 5 April 2026;
- treating the £500 allowance as a deduction, which understates tax when dividends straddle the higher rate threshold;
- forgetting that dividends push up adjusted net income for the Personal Allowance taper and the High Income Child Benefit Charge;
- assuming Scottish income tax bands apply to dividends.
If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.
Related Accountapedia entries
- Income tax rates and bands for 2026 to 2027
- How to work out your income tax step by step
- What changes when you become a higher rate taxpayer
- Tax on savings interest and the Personal Savings Allowance
- The £5,000 starting rate for savings
- Scottish Income Tax rates and bands
- Salary or dividends: paying yourself as a director
Sources
- legislation.gov.uk: Act 2007 c. 3, section 8
- GOV.UK: Income tax rates and allowances current and past
- GOV.UK: Changes to tax rates for property savings and dividend income
- GOV.UK: Change to tax rates for property savings and dividend income technical
- GOV.UK: Scottish income tax
- GOV.UK: Welsh income tax
- legislation.gov.uk: Act 2007 c. 3, section 19
- GOV.UK: How to complete your self assessment tax return for last tax year
- GOV.UK: Tax on dividends
- GOV.UK: Income tax rates
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.