Dividend Tax 2026/27: The New 10.75% / 35.75% / 39.35% Rates Explained
Dividend tax changed on 6 April 2026. If you own shares in a UK company — listed or your own limited company — the rates you pay on dividend income are higher than they were last year. The change isn't enormous (2 percentage points at basic and higher rates) but for director-shareholders extracting £30,000+ in dividends a year, it adds up to a real number.
This guide explains the new rates, the unchanged dividend allowance, who is affected most, and how to think about salary-vs-dividend extraction in 2026/27.
Use the Dividend Tax Calculator for individual situations, or the Dividend vs Salary Calculator for director-shareholders.
The 2026/27 dividend tax rates
Dividend tax in the UK is charged on the dividend income that falls above the dividend allowance, and the rate depends on the income tax band the income falls into:
| Income tax band | Dividend tax rate 2025/26 | Dividend tax rate 2026/27 |
|---|---|---|
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
Two percentage points at basic and higher rate, unchanged at additional rate. The additional rate threshold remains £125,140 of total income.
The dividend allowance — the amount of dividends you can receive each year tax-free — stays at £500 for 2026/27. It has been £500 since 2024/25, having been gradually cut from £2,000 in earlier years.
The Personal Allowance is also unchanged at £12,570. Dividends do count against your Personal Allowance, but where dividends fall within both the PA and the dividend allowance, the dividend allowance is consumed first.
How the new rates actually work — a worked example
Say you take £8,840 of salary (just below the NI lower earnings limit) and £45,000 of dividends from your own limited company. Total income: £53,840. You're a UK basic/higher-rate taxpayer with no other complications.
Step 1: Personal Allowance covers the £8,840 salary entirely, plus the first £3,730 of dividends. £41,270 of dividend income remains after PA.
Step 2: Dividend allowance. The first £500 of that £41,270 is tax-free.
Step 3: Apply the bands. Of the remaining £40,770:
- Basic-rate dividend band: from £12,571 to £50,270 of total income — £37,700 of headroom, of which £8,840 is salary, so £28,860 of dividends fall here. Tax at 10.75% = £3,102.45.
- Higher-rate dividend band: from £50,271 upwards. £40,770 − £28,860 = £11,910 of dividends in this band. Tax at 35.75% = £4,257.83.
Total dividend tax: £7,360.28. Under last year's rates (8.75% / 33.75%), the same £45,000 of dividends would have generated about £6,150 — so the change costs this director-shareholder around £1,210 a year.
You can plug your own numbers into the Dividend Tax Calculator to see the equivalent for your situation.
Who is hit hardest
Three groups feel the change most:
1. Limited-company director-shareholders. This is the population the change is principally aimed at. If you extract income via dividends rather than salary, the 2pp rise affects every pound of dividends above the £500 allowance.
2. Investors with shares held outside an ISA. Anyone with a meaningful dividend-paying portfolio outside the ISA wrapper (or pension) is now paying 10.75% / 35.75% rather than 8.75% / 33.75% on the income.
3. Higher-rate dividend recipients. A higher-rate payer with £50,000 of dividends pays an extra £1,000 a year. For an additional-rate payer (above £125,140), the rate is unchanged — they were already at 39.35%.
For dividends inside an ISA, the rate is still 0% — they are tax-free. Same for dividends inside a SIPP or workplace pension. The rule change doesn't touch wrapped income.
Should I switch from dividends to salary?
For a sole director-shareholder, the classic extraction route has been: pay yourself a small salary up to the Personal Allowance (or the NI Secondary Threshold, depending on circumstances), then take the rest as dividends. The maths has been favourable because:
- Salary above the relevant threshold attracts Class 1 NI (employee + employer).
- Salary is deductible from corporation tax, but dividends are not.
- Dividends were taxed more lightly than salary at most income levels.
The 2026/27 change narrows that last advantage. Salary is still pre-CT and dividends are post-CT, which gives salary a built-in head start of whatever your CT rate is (19% small profits, 25% main, with marginal relief between £50,000 and £250,000 of profits). But the gap between salary and dividend tax has shrunk by 2 percentage points.
For most sole-director limited companies, the "£12,570 salary plus dividends" pattern is still optimal. The change reduces the size of the win — it doesn't reverse the direction. The Dividend vs Salary Calculator runs the three scenarios (all salary, all dividend, £12,570 + dividends) side by side on the same total company profit.
What about Class 4 NI on the self-employment side?
This isn't a dividend question directly, but it's the other half of the small-business tax picture. Class 4 NI for the self-employed dropped from 9% to 6% in April 2024 — and remains at 6% / 2% for 2026/27. Class 2 NI is no longer a mandatory payment for self-employed profits above £7,105 (it's still voluntary if you're below that).
So for sole traders, the tax burden on profits is materially lower than it was three years ago. For limited company directors, it's marginally higher than last year because of the dividend change. This is why we see more people running the Limited Company vs Sole Trader Calculator at the moment — the trade-off has shifted.
Tax-efficient dividend planning for 2026/27
A few patterns that still work in the new regime:
Use both spouses' allowances. If your spouse has unused Personal Allowance and dividend allowance, transferring shares (a no-gain-no-loss disposal between spouses) and paying dividends across both of you uses two sets of allowances and two basic-rate bands.
Time dividend declarations. Dividends are taxed in the tax year they are declared — not when paid out. If you're going to be in a higher band next year (say, a one-off bonus from your day job), pulling a dividend declaration forward into the current tax year can save 25 percentage points (40% income tax on salary, dropping to 10.75% on dividend inside basic-rate band).
Use the ISA wrapper. Up to £20,000 a year of investments can be held tax-free in an ISA. Dividends inside an ISA pay 0% tax. If you have substantial unwrapped holdings, gradually shifting them into the ISA wrapper ("Bed & ISA") is worth modelling — though watch out for CGT on the sale, which has its own rates and £3,000 allowance.
Pension contributions. Personal pension contributions reduce your taxable income (subject to the £60,000 annual allowance and lifetime tapering rules for high earners). For higher-rate dividend payers, the effective tax saving is more than the headline rate suggests — your dividend income is pulled into a lower tax band as a side-effect.
Common questions
"Does the rate apply from 6 April 2026 or my company's accounting year?" It applies to dividends declared on or after 6 April 2026, regardless of your company year-end.
"What if I declare a dividend in March 2026 but pay it in May 2026?" For tax purposes, the declaration date is what counts — not the payment date. A dividend declared on 31 March 2026 is taxed under 2025/26 rules even if cash leaves the bank later.
"Does this affect my ISA dividends?" No. ISA dividends are 0% — and that's unchanged.
"What about REIT property income distributions (PIDs)?" PIDs are not dividends for tax purposes — they're taxed as property income, not at dividend rates. The change in dividend tax doesn't apply to them.
The bottom line
For 2026/27, dividend tax is 2 percentage points higher at basic and higher rate. The dividend allowance stays at £500. Additional rate is unchanged at 39.35%. ISA dividends remain 0%.
For director-shareholders, the "small salary plus dividends" pattern is still the right answer for most — but the win is smaller than it was. For investors, holding dividend stocks inside the ISA wrapper has become slightly more valuable than it already was.
Plug your numbers into the Dividend Tax Calculator to see the change for your situation, or the Dividend vs Salary Calculator if you run your own limited company.
This article is for general guidance only and is not personalised tax advice. Tax rules are complex and your circumstances may differ. For advice tailored to your situation, speak to a qualified accountant or tax adviser.