The dividend allowance
Everyone gets a dividend allowance of £500 for 2026/27. The first £500 of dividend income is taxed at 0%. The catch: that £500 still counts towards your total income when working out which tax band your other dividends fall into — it uses up band space even though no tax is charged on it.
On top of the dividend allowance, if you have spare personal allowance after your other income, that tax-free amount can also cover dividends.
Dividend tax rates 2026/27
Above the allowance, the rate you pay depends on the tax band the dividends fall into once stacked on your other income:
| Band | Dividend rate 2026/27 |
|---|---|
| Basic rate (up to £50,270) | 10.75% |
| Higher rate (£50,271 – £125,140) | 35.75% |
| Additional rate (over £125,140) | 39.35% |
These dividend rates are lower than the rates on salary because the company has already paid corporation tax on its profits before paying the dividend.
How dividends stack on income
The key rule is that dividends are the top slice of your income. HMRC taxes your other income first — that fills the personal allowance and the lower bands — and only then are dividends taxed at the dividend rate for whichever band is left.
A worked example
Take a director with a £12,570 salary (using the full personal allowance) and £20,000 of dividends in 2026/27:
Push the dividends higher and part of them spills into the higher-rate band at 35.75%, which is where the bill climbs quickly. The calculator above shows where your own dividends land; to compare a salary-only versus salary-plus-dividend strategy, it helps to also run your wage through a salary calculator so you can see both halves side by side.
How to report and pay
- Up to £10,000 in dividends: you can ask HMRC to change your tax code, or report via Self Assessment.
- Over £10,000: you must file a Self Assessment tax return.
- Inside an ISA: dividends from shares held in a stocks and shares ISA are completely tax-free and do not count toward the allowance.