How dividend tax works in 2026/27

How dividends are taxed

Work out your tax on everything else first: salary, pension, self-employed profits, rental profits and savings interest. Dividends come last, sitting on top. That order matters, because it means dividends are the part of your income most likely to land in a higher band.

Three things can make some of them tax-free:

• Unused Personal Allowance. If your other income is below £12,570, whatever's left of it covers your dividends.
• The £500 dividend allowance. It's a 0% rate, not a deduction, so the £500 still uses up part of whichever band it falls in.
• ISAs. Dividends from shares held in an ISA aren't taxed, and don't count towards your allowance or your income limits.

The rates are the same across the UK. Scottish taxpayers pay Scottish rates on their salary, but their dividends are taxed at the UK dividend rates and bands.

Worked examples

Dividend tax for 2026/27 for someone in England, on top of the other income shown:

£30,000 salary. The first £500 is tax-free and the other £4,500 is all in the basic-rate band: £4,500 × 10.75% = £483.75.

£45,000 salary. The salary leaves £5,270 of the basic-rate band. The £500 allowance uses some of it, £4,770 is taxed at 10.75% (£512.78), and the remaining £4,730 spills into the higher-rate band at 35.75% (£1,690.98).

£60,000 salary. Everything is already in the higher-rate band, so after the £500 allowance the other £2,500 is taxed at 35.75%.

A company director taking a £12,570 salary and £40,000 of dividends: £500 at 0%, £37,200 at 10.75% (£3,999) and £2,300 at 35.75% (£822.25). The same dividends cost £4,031.25 in 2025/26, so the April 2026 rise adds £790 a year.

Over £100,000. With a £110,000 salary and £10,000 of dividends, the dividends themselves are taxed at £3,396.25 (£9,500 at 35.75% after the £500 allowance). But they also take another £5,000 off your Personal Allowance, which costs £2,000 more tax on your salary. The extra tax caused by the dividends is £5,396.25, and the Dividend Tax Calculator includes that part in its total and shows it on a separate line.

Work out dividend tax on your own figures →

Things that catch people out

Dividends count towards your income limits. They're included in adjusted net income, so they can trigger the High Income Child Benefit Charge from £60,000 and start removing your Personal Allowance from £100,000.

The allowance uses band space. £500 of tax-free dividends can still push other dividends, or savings interest, into a higher band.

No National Insurance, but tax still has to be paid. Dividends never carry National Insurance, which is part of why directors take them. But nobody deducts the tax for you. If your dividends are more than your unused Personal Allowance plus the £500 allowance, you need to tell HMRC. Up to £10,000 of dividends, you can ask for the tax to be collected through your tax code. Above £10,000 you have to file a Self Assessment return.

Shares outside an ISA. With the allowance at £500, a modest portfolio can easily go over it. Moving shares into an ISA over time, using the £20,000 a year ISA allowance, keeps future dividends tax-free.

What's coming next

From April 2027, the rates on savings interest and property income are due to rise by 4 percentage points, to 24%, 44% and 49% (2 points announced at the 2025 Budget and 2 more at the 28 October 2026 Budget; not yet law). Dividend rates aren't part of that change, because they already rose in April 2026.

Common questions

Are dividends inside a pension taxed? No. Dividends earned inside a pension, like those inside an ISA, aren’t taxed and don’t use your dividend allowance. Pension income is taxed as ordinary income when you take it out, apart from the tax-free part.

Are payments from investment funds dividends? Usually. Distributions from share-based funds and investment trusts are taxed as dividends. A fund that holds more than 60% in bonds, cash or other interest-paying investments pays interest distributions instead, which are taxed as savings income, with the Personal Savings Allowance rather than the dividend allowance.

When do I pay the tax? If you file Self Assessment, the tax on a year’s dividends is due by 31 January after the tax year ends: 31 January 2028 for dividends received in 2026/27. It may also count towards payments on account for the following year, which can make the first January bill larger than expected.