💰 2026/27 · £500 Dividend Allowance · HMRC-aligned

Dividends Tax Explained

How dividend income is taxed in the UK for 2026/27 — rates, allowances, and how dividends interact with your salary.

Dividend tax rates 2026/27

Tax BandIncome RangeDividend RateSalary Rate (for comparison)
Personal AllowanceUp to £12,5700%0%
Dividend AllowanceFirst £500 of dividends0%N/A
Basic Rate£12,571 – £50,2708.75%20%
Higher Rate£50,271 – £125,14033.75%40%
Additional RateAbove £125,14039.35%45%

Dividend rates are lower than salary rates because the company has already paid Corporation Tax (25%) on the profits before distributing dividends.

How dividend tax works

Dividends are payments made by a company to its shareholders from profits. In the UK, they are taxed differently from salary — at lower rates — because the company has already paid Corporation Tax on the profits.

Example: £30,000 salary + £10,000 dividends

1. Salary uses up PA (£12,570) + basic rate band. Income tax on salary: £3,486
2. First £500 of dividends: tax-free (dividend allowance)
3. Remaining £9,500 of dividends: taxed at 8.75% = £831.25
4. Total dividend tax: £831.25 (vs £1,900 if this were salary + NI)

Key changes in recent years

  • 2022/23: Dividend allowance was £2,000
  • 2023/24: Cut to £1,000
  • 2024/25 onwards: Cut again to £500
  • Corporation Tax: Main rate increased to 25% from April 2023 (was 19%)
⚠️ No NI on dividends

Unlike salary, dividends are not subject to National Insurance— neither employee nor employer NI. This makes dividends attractive for company directors. However, dividends don't count towards your State Pension NI record or Maternity Allowance.

Source: GOV.UK Tax on Dividends

Related tools

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Self-Employed Calculator
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Dividends tax FAQs

How much dividend can I earn tax-free?
In 2026/27, the Dividend Allowance is £500. The first £500 of dividend income is tax-free regardless of which tax band you're in. This is down from £1,000 in 2023/24 and £2,000 in 2022/23.
What are the dividend tax rates for 2026/27?
Basic Rate: 8.75% on dividends in the basic rate band (after your personal allowance and dividend allowance). Higher Rate: 33.75% on dividends in the £50,271–£125,140 band. Additional Rate: 39.35% on dividends above £125,140.
Do I pay National Insurance on dividends?
No. Dividends are not subject to National Insurance — neither employee NI nor employer NI. This is one reason company directors often pay themselves a small salary plus dividends.
How do dividends interact with my salary?
Dividends are added on top of your salary income to determine your total income. Your personal allowance (£12,570) and basic rate band (£37,700) are used up by your salary first, then dividends fill the remaining space. This means if your salary already uses your basic rate band, dividends are taxed at 33.75%.
What is the most tax-efficient salary and dividend split?
For a company director in 2026/27, a common strategy is to pay a salary up to the NI Primary Threshold (£12,570/year) to preserve NI credit but avoid NI charges, then take the rest as dividends. This saves employer NI (13.8%) and employee NI (8%) on the dividend portion.
Do I need to file a Self Assessment for dividends?
If your dividend income exceeds the £500 allowance and you're not already in Self Assessment, you'll need to register and file a return. If total dividend income (before the allowance) is under £10,000, you can ask HMRC to adjust your tax code instead.