The short answer
For 2026/27 dividend tax is 10.75% for basic rate taxpayers, 35.75% for higher rate and 39.35% for additional rate, after a £500 dividend allowance. You can reduce the bill by using your personal allowance, spreading dividends across the year and between spouses who own shares, making pension contributions and using ISAs.
Checked 26 October 2026. Rates for 2026/27.Key facts
| Fact | Detail |
|---|---|
| Dividend allowance | £500 |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
| Reported on | Self Assessment, due 31 January |
How dividend tax works
Dividends are payments of company profit to shareholders. Because the company has already paid Corporation Tax on the profit, dividends are taxed in your hands at special rates that are lower than ordinary income tax rates but higher than the old ones. For 2026/27 the rates are 10.75% where the dividend falls in your basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band.
Dividends are treated as the top slice of your income. HMRC works out your tax by first taxing your salary and other non-dividend income, then stacking the dividends on top. Your tax-free personal allowance is used against non-dividend income first, so a director who takes a £12,570 salary has used it up already, while one with a lower salary has some allowance left to set against dividends.
The £500 dividend allowance
Everyone has a dividend allowance of £500 a year. Dividends within the allowance are taxed at 0%, though they still use up part of your basic or higher rate band, which can push the next pound into a higher band. The allowance is small, so for most company directors it only softens the first slice of their dividend income.
The allowance applies per person, not per company, so it matters if you own shares in more than one company or hold investments outside the company that also pay dividends. Your total dividend income from all sources counts.
Worked examples for 2026/27
Take a director with a £12,570 salary who draws £37,700 in dividends. The salary uses the personal allowance. Of the dividend, £500 is covered by the allowance and the remaining £37,200 falls inside the basic rate band, so the tax is £37,200 multiplied by 10.75%, which is £3,999.
If the same director draws £60,000 in dividends, the basic rate band of £37,700 is used first. The first £500 is tax-free, the next £37,200 is taxed at 10.75% (£3,999), and the remaining £22,300 falls into the higher rate band at 35.75%, which is £7,972. The total dividend tax is about £11,971, an effective rate of just under 20%.
The jump between the two rates is why planning around the higher rate threshold, which for most people is £50,270 of total income, is the single biggest saving available.
Legitimate ways to reduce dividend tax
There are several lawful ways to lower the bill, and most directors can use more than one.
Use the personal allowance. If your salary is below £12,570, dividends can use the spare allowance at 0%.
Spread dividends across tax years. Taking a dividend on 5 April rather than 7 April can move it to a different tax year and a fresh set of bands.
Share ownership with a spouse or civil partner. If a partner genuinely owns shares and has unused bands, dividends are taxed in their hands. This needs real share ownership and takes advice because of the settlements rules.
Pension contributions. A company contribution reduces profit and your taxable income, and can keep you under the higher rate threshold.
Leave profit in the company. Retained profit pays Corporation Tax but no dividend tax until you extract it.
ISAs and investments. Shares held in an ISA generate dividends outside the tax net.
Paying and reporting dividends correctly
A dividend can only be paid from retained profits. The directors should hold a short board meeting to declare it and issue a dividend voucher showing the company name, shareholder, date and amount. If the company has several share classes or shareholders, the dividends must follow the share rights.
You report dividends on your Self Assessment return, and the tax is due by 31 January following the end of the tax year. Many directors forget to set money aside, so it is sensible to hold back roughly 10% to 12% of dividends in a separate account as the basic rate bill builds up.
Unlawful dividends, paid when the company lacks profits, are treated as director’s loan account entries and can attract extra tax, so keep management accounts up to date before declaring a payment.
Common mistakes to avoid
The most frequent problems are paying dividends from a company that has made a loss, forgetting to register for Self Assessment, treating the dividend as net when it is gross, and taking dividends in the wrong proportions between shareholders.
Another mistake is assuming the 2025/26 rates still apply. The rates went up for 2026/27, so tax bills for the same dividend are higher than last year. If you set aside money based on last year’s percentages, you could be short. A quick calculation with our dividend tax calculator, or a call with an accountant before the year end, avoids surprises.
How dividend tax compares with other tax rates
It helps to see dividend tax alongside the other taxes on company profit. A company pays Corporation Tax at 19% on profits up to £50,000 and 25% above £250,000. When the profit is then paid out as a dividend, you pay dividend tax on top. The two taxes combine, so a basic rate director effectively pays about 28% on profit that is paid out, and a higher rate director pays a combined rate nearer 50%.
By contrast, employment income is taxed at 20% basic rate plus 8% employee National Insurance, plus 15% employer National Insurance paid by the company. On a salary above the personal allowance, the total can approach 40% at basic rate. Dividends are therefore cheaper than salary for most directors, even after the rate rises, which is why they remain central to director pay planning.
Planning around the year end
Because dividends can be declared on any date, you have more control over timing than with salary. A few habits are worth building in.
Review your income before the tax year ends on 5 April. If you are close to the higher rate threshold, delay a dividend until the new tax year.
Where profits are volatile, take smaller regular dividends and a top-up near the year end, once you know the profit.
Check that retained profits cover the dividend after Corporation Tax is provided for.
Make sure shareholders with different tax positions are paid according to their share rights.
A short call with your accountant in February or March is often enough to turn a rough plan into a precise one, and the saving can be worth far more than the fee.
The bottom line
For 2026/27 dividend tax is 10.75% for basic rate taxpayers, 35.75% for higher rate and 39.35% for additional rate, after a £500 dividend allowance. If you would rather not do it alone, our fixed fees start at £45.83 + VAT a month.
Frequently asked questions
What is the dividend tax rate for 2026/27?
The rates are 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The first £500 of dividends in a tax year is covered by the dividend allowance and taxed at 0%.
When do I pay tax on dividends?
Normally through Self Assessment, by 31 January after the end of the tax year. For dividends taken in 2026/27 the tax is due by 31 January 2028. If you owe more than £1,000, you may also need to make payments on account.
Can I pay dividends monthly?
Yes, as long as each payment comes from available profits and is properly declared. Many directors take a regular monthly dividend and then top up or reconcile at the year end.
Do dividends count towards the higher rate threshold?
Yes. Dividends are added to your other income when HMRC works out which band applies, so large dividends can push part of your income into the higher rate.
Are dividends taxed twice?
Not strictly, but the profit is taxed first in the company through Corporation Tax and then again in your hands as dividend tax. That is why a dividend is described as being paid from post-tax profit. The dividend tax rates are set lower than income tax rates partly to reflect this.
What happens if I forget to report dividends?
HMRC may find out through company records and charge the tax due plus interest and penalties. If you realise you missed a dividend, report it as soon as possible, because a voluntary disclosure usually attracts lower penalties.
This article is general information, not personal tax or financial advice. Rules and rates change, so check GOV.UK or speak to an accountant about your circumstances. Rates shown are for 2026/27, last checked November 2026.