In 2026/27 you can receive £500 in dividends tax-free. Above that, you pay 8.75%, 33.75%, or 39.35% depending on your income tax band. Here is exactly how it works, with worked examples for every common situation.
See also: our Income Tax Guide for how dividends interact with other income.
Dividend Tax Rates 2026/27
| Tax band | Dividend tax rate | Income range |
|---|---|---|
| Dividend allowance | 0% | First £500 of dividends |
| Basic rate | 8.75% | Up to £50,270 total income |
| Higher rate | 33.75% | £50,271–£125,140 total income |
| Additional rate | 39.35% | Above £125,140 total income |
Key rule: Dividends are always treated as the top slice of your income. Your salary, rental income, and other earnings fill the lower bands first. If your salary already takes you into the higher rate band, your dividends are taxed at 33.75% from the first pound above £500.
How to Calculate Your Dividend Tax
Step 1: Add your total income (salary + dividends + any other income).
Step 2: Subtract your Personal Allowance (£12,570) and any deductions (pension contributions, Gift Aid).
Step 3: Identify which band your dividends fall into — they sit on top.
Step 4: Apply the rates:
- First £500 of dividends → 0%
- Remainder in basic rate band → 8.75%
- Remainder in higher rate band → 33.75%
- Remainder above £125,140 → 39.35%
Worked Example 1: Basic Rate Taxpayer With Dividend Income
Tom earns £35,000 salary and receives £3,000 in dividends from a stocks and shares portfolio.
| Income | Amount |
|---|---|
| Salary | £35,000 |
| Dividends | £3,000 |
| Total income | £38,000 |
Income tax on salary:
- Personal Allowance: £12,570 (tax-free)
- Taxable salary: £22,430 at 20% = £4,486
Dividend tax:
- Position in band: salary uses £35,000 of the £50,270 basic rate ceiling; £15,270 of basic rate band remains
- £500 dividend allowance at 0%: £0
- Remaining £2,500 at 8.75% = £219
| Amount | |
|---|---|
| Income tax on salary | £4,486 |
| Dividend tax | £219 |
| Total tax | £4,705 |
Tom pays just £219 on £3,000 of dividends because they fall within the basic rate band. He needs to tell HMRC about this income — see the self-assessment section below.
Worked Example 2: Higher Rate Taxpayer With Dividends
Rachel earns £65,000 salary and receives £8,000 in dividends.
| Income | Amount |
|---|---|
| Salary | £65,000 |
| Dividends | £8,000 |
| Total income | £73,000 |
Because Rachel’s salary alone (£65,000) already exceeds the basic rate ceiling (£50,270), all her dividends land in the higher rate band.
Dividend tax:
- £500 at 0% (allowance)
- £7,500 at 33.75% = £2,531
| Amount | |
|---|---|
| Income tax on salary | £13,432 |
| Dividend tax | £2,531 |
| Total tax | £15,963 |
Rachel pays nearly four times as much dividend tax as Tom on similar dividends — because her salary has already pushed her into the higher rate band. See our £65,000 take-home pay guide for the full salary breakdown.
Worked Example 3: Limited Company Director
This is the scenario most relevant to self-employed directors running a limited company.
David pays himself a salary of £12,570 (equal to his personal allowance) and £40,000 in dividends from his company.
| Income | Amount |
|---|---|
| Director salary | £12,570 |
| Dividends | £40,000 |
| Total income | £52,570 |
Income tax on salary: £0 (fully covered by personal allowance)
NI on salary: £0 (£12,570 is at the primary threshold — no employee NI due)
Dividend tax:
- The basic rate band is £37,700 (from £12,571 to £50,270). Salary of £12,570 fills the PA, so the full £37,700 of basic rate is available for dividends.
- £500 at 0%
- £37,200 at 8.75% = £3,255
- Remaining £2,300 at 33.75% = £776
- Total dividend tax: £4,031
| Amount | |
|---|---|
| Income tax on salary | £0 |
| Employee NI | £0 |
| Dividend tax | £4,031 |
| Total personal tax | £4,031 |
How this compares to taking the same amount as salary:
If David paid himself £52,570 as salary instead:
| Salary only | Salary + dividends | |
|---|---|---|
| Income tax | £8,460 | £4,031 |
| Employee NI | £3,127 | £0 |
| Employer NI (company cost) | ~£5,487 | ~£324 |
| Total tax + NI | £17,074 | £4,355 |
The salary-plus-dividend structure saves David approximately £12,719 in total tax and NI per year on the same £52,570 gross income — the principal reason limited company structures are popular for self-employed professionals.
Note: Corporation tax is paid by the company on profits before dividends are paid out (25% for profits above £250,000; 19% for profits below £50,000 in 2026/27). The comparison above focuses on personal-level tax only.
Dividend Tax Reference Table
Use this table to estimate your dividend tax bill. It shows the tax owed on dividend amounts by income band, after the £500 allowance.
| Dividends received | Basic rate taxpayer (8.75%) | Higher rate taxpayer (33.75%) | Additional rate (39.35%) |
|---|---|---|---|
| £500 | £0 (all in allowance) | £0 (all in allowance) | £0 (all in allowance) |
| £1,000 | £44 | £169 | £197 |
| £2,000 | £131 | £506 | £591 |
| £5,000 | £394 | £1,519 | £1,770 |
| £10,000 | £831 | £3,206 | £3,737 |
| £20,000 | £1,706 | £6,581 | £7,668 |
| £50,000 | £4,331 | £16,706 | £19,481 |
Assumes all dividends fall within a single tax band. In practice, dividends may span two bands.
Dividends Inside an ISA: Tax-Free
Dividends received on investments held inside a Stocks and Shares ISA are completely free of tax — with no limit and no reporting requirement. They do not use any of your £500 allowance.
If you invest in dividend-paying stocks or funds, holding them inside a Stocks and Shares ISA is almost always more efficient than holding them outside, especially if you are a higher or additional rate taxpayer.
The ISA allowance is £20,000 per year in 2026/27. See our ISA Allowance guide for details.
Do You Need to File a Self-Assessment Return?
| Dividend income | What to do |
|---|---|
| Up to £500 | Nothing — within the allowance |
| £501–£10,000 | Tell HMRC — tax collected via PAYE code adjustment (or file self-assessment if you already do) |
| Over £10,000 | Must register for and file self-assessment |
| Already file self-assessment | Include all dividend income on your return regardless of amount |
To tell HMRC about dividend income under £10,000, use the “Check your Income Tax” service on gov.uk. HMRC will update your tax code to collect the tax from future PAYE earnings.
How Dividends Interact With the Personal Allowance Taper
If your total income (salary + dividends) exceeds £100,000, your personal allowance is reduced by £1 for every £2 above that threshold. The effective marginal rate becomes 60% in the taper zone (£100,001–£125,140).
Example: If you earn £90,000 salary and receive £15,000 in dividends, your adjusted net income is £105,000. Your personal allowance is reduced by £2,500 (from £12,570 to £10,070). The tax cost of the dividends is significantly higher than the headline rate suggests.
Pension contributions can reduce your adjusted net income and restore the allowance. Each £2 contributed reduces the taper by £1 of allowance, worth 40% in tax. See our £100,000 personal allowance trap guide for a full explanation.
Key Facts: Dividend Allowance History
The allowance has been cut significantly:
| Tax year | Dividend allowance |
|---|---|
| 2017/18–2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 onwards | £500 |
There is no indication the allowance will increase. This makes ISA sheltering and pension contributions increasingly important for investors with significant dividend income.