Dividend Tax Rates 2026/27
| Band | Income Range | Dividend Tax Rate |
|---|---|---|
| Dividend Allowance | First £500 | 0% |
| Basic Rate | £12,571 – £50,270 | 10.75% |
| Higher Rate | £50,271 – £125,140 | 35.75% |
| Additional Rate | Over £125,140 | 39.35% |
The basic and higher dividend rates both rose by 2 percentage points from 6 April 2026 (from 8.75% and 33.75% respectively), following the Autumn Budget 2025. The additional rate held at 39.35%.
How the £500 Dividend Allowance Works
Every taxpayer gets a £500 dividend allowance for 2026/27, regardless of which Income Tax band they're in. It isn't a separate exemption that disappears from your income — the £500 still counts towards your total income when working out which band your other income falls into. It simply taxes the first £500 of dividends at 0%.
The allowance has been cut sharply in recent years: £5,000 in 2017/18, down to £2,000 in 2018/19, then £1,000 in 2023/24, and £500 from 2024/25 onwards, where it remains for 2026/27.
Worked Example
A company director takes a £12,570 salary (using their full Personal Allowance) and £30,000 in dividends in 2026/27. The first £500 of dividends is tax-free. The remaining £29,500 falls within the basic rate band (up to £50,270), so it's taxed at 10.75%: £29,500 × 10.75% = £3,171.25 in dividend tax.
Dividends vs Salary
Dividends aren't subject to National Insurance, unlike salary — which is why many limited company directors take a modest salary plus dividends. Whether this is more tax-efficient than a salary-only approach depends on your company's profits, your other income and current Corporation Tax rates, so it's worth checking with an accountant for your specific situation.