Dividend tax rates and the £500 allowance for 2027/28 — unchanged from 2026/27.
Last reviewed: May 2026. Any changes announced in the autumn 2026 Budget will be reflected here.
Dividend Tax Rates — 2027/28
| Tax band | Dividend income rate |
|---|---|
| Within dividend allowance (first £500) | 0% |
| Basic rate band | 8.75% |
| Higher rate band | 33.75% |
| Additional rate | 39.35% |
Dividend Allowance History
| Tax year | Dividend allowance |
|---|---|
| 2017/18 – 2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 | £500 |
| 2025/26 | £500 |
| 2026/27 | £500 |
| 2027/28 | £500 |
How Dividend Tax Is Calculated — 2027/28
Dividends sit on top of other income in the tax calculation:
- Calculate non-dividend income (salary, pension, self-employment)
- Deduct personal allowance (£12,570)
- Apply income tax to non-dividend income at normal rates
- Add dividend income on top
- First £500 dividends: 0% (dividend allowance)
- Dividends falling in basic rate band: 8.75%
- Dividends falling in higher rate band: 33.75%
- Dividends falling in additional rate: 39.35%
Worked Example — Director/Shareholder
| Salary | £12,570 (equal to personal allowance) |
| Dividend income | £40,000 |
| Non-dividend taxable income | £0 (salary = personal allowance) |
| Dividend allowance | −£500 → £0 tax |
| Remaining dividend in basic rate band: | £37,700 × 8.75% = £3,299 |
| Remaining dividend above basic rate band: | £1,800 × 33.75% = £608 |
| Total dividend tax | £3,907 |
| Plus: no income tax on salary (= PA) | £0 |
| Total tax | £3,907 |
Tax-Efficient Dividend Strategy for 2027/28
| Strategy | Benefit |
|---|---|
| Use ISA allowance (£20,000) for investments | Dividends within ISA are completely tax-free |
| Keep salary at/below personal allowance | No income tax or NI on salary |
| Utilise partner’s dividend allowance | £500 each = £1,000/household tax-free |
| Spouse who is a non-taxpayer: dividends within PA | 0% tax on dividends within their personal allowance |
| Pension contributions to reduce income | Avoid 33.75% or 39.35% rate |
Reporting Dividend Income — Self Assessment
You must report dividend income if:
- Your dividends exceed the £500 allowance, or
- Your total income from all sources means you owe tax
PAYE employees with dividend income: If your dividends exceed £10,000 per year, you must register for Self Assessment. Below £10,000, HMRC may adjust your tax code to collect the tax — but Self Assessment is cleaner for larger dividend amounts.
Company directors: Most will already file Self Assessment and include dividends on the return. Dividends from your own company are reported under the “dividends from UK companies” box. Record dividend amounts using dividend vouchers issued by the company for each dividend payment — these are a legal requirement.
Deadline: Dividend income for 2027/28 must be reported on the Self Assessment return by 31 January 2029 (or 31 October 2028 for paper returns).
Pension Contributions and Dividend Tax
Making pension contributions can move your income from the higher rate band back into the basic rate band, reducing the tax on dividends from 33.75% to 8.75%. This is a significant saving for directors with large dividend withdrawals.
Example: A director with £60,000 of dividends and no salary would normally pay 33.75% on dividends above £50,270. A pension contribution of £15,000 gross (£12,000 net) reduces the effective income, pulling more dividends into the basic rate band and saving up to £3,900 in dividend tax — plus the pension contribution itself attracts tax relief.