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Dividends are payments a company makes to its shareholders out of its profits. If you own shares, whether in a large listed company or in your own limited company, you may need to pay tax on the dividends you receive. The rates rose in April 2026, so it's worth understanding how the rules apply to you.

This guide explains the 2026/27 dividend tax rates, the dividend allowance and how dividends are taxed alongside other income. To work out your own bill, use the UK dividend tax calculator.

Dividend tax rates for 2026/27

From 6 April 2026, dividends above your allowances are taxed at:

The basic and higher rates each rose by two percentage points from the previous year. The additional rate didn't change.

The dividend allowance

Everyone gets a dividend allowance of £500 a year. The first £500 of dividends you receive is taxed at 0%.

The allowance doesn't increase your tax bands. Dividends covered by it still count as income and use up part of your basic or higher rate band. This matters when deciding which rate applies to the rest.

How dividends are taxed alongside other income

Dividends are treated as the top slice of your income. HMRC works through your income in a set order:

1. Non-savings income first, such as salary, pension and rental profits
2. Savings income next, such as bank interest
3. Dividends last

Your personal allowance of £12,570 is used against your salary or other income first. Any personal allowance left over can then cover dividends. Whatever band the dividends land in decides the rate.

Scottish taxpayers pay Scottish rates on wages, but dividends are taxed using the UK-wide bands and the rates above.

Worked examples

A company director paying a small salary

Jamie runs a limited company and takes a salary of £12,570 plus £40,000 in dividends.

• The salary is covered by the personal allowance, so no income tax is due on it.
• The first £500 of dividends is covered by the dividend allowance.
• The next £37,200 falls in the basic rate band and is taxed at 10.75%: £3,999.
• The final £2,300 falls in the higher rate band and is taxed at 35.75%: £822.25.
• Total dividend tax: £4,821.25

An employee with a small portfolio

Chris earns a salary of £50,000 and receives £5,000 in dividends from shares held outside an ISA.

• Chris's salary uses all but £270 of the basic rate band.
• The £500 allowance covers the first £500 of dividends, using that £270 and £230 of the higher rate band.
• The remaining £4,500 is taxed at 35.75%.
• Total dividend tax: £1,608.75

You can check both examples in the dividend tax calculator.

Dividends from your own limited company

Many company directors pay themselves a mix of salary and dividends. Dividends are paid from profits after corporation tax, and they don't attract National Insurance, which is why they can be tax-efficient. But the gap has narrowed: with corporation tax of 19% to 25% and higher dividend rates, it's worth reviewing the balance each year with your accountant.

A few rules to remember:

• Dividends can only be paid from retained profits. Paying dividends the company can't afford can create a debt you owe the company.
• Each dividend should be properly declared, with board minutes and a dividend voucher.
• Dividends must be paid in proportion to shareholdings unless you have different share classes.

How to pay dividend tax

How you pay depends on how much you receive:

• Up to £500: no tax and nothing to report.
• £500 to £10,000: you can ask HMRC to collect the tax through your tax code, or include it on a Self Assessment return if you already file one.
• Over £10,000: you must complete a Self Assessment tax return.

Self Assessment returns for the 2026/27 tax year are due by 31 January 2028, along with any tax owed. If your bill is large, you may also have to make payments on account towards the following year.

Ways to reduce dividend tax legitimately

1. Use ISAs. Dividends from shares held in a stocks and shares ISA are tax-free and don't use your allowance. You can pay in up to £20,000 a year.
2. Use pensions. Investments held inside a pension grow free of dividend tax.
3. Share ownership with a spouse or partner. If your spouse pays a lower rate of tax, holding shares jointly or in their name can reduce the overall bill. Settlements rules can apply to some arrangements involving your own company, so take advice.
4. Plan the timing. For directors, spreading dividends across tax years can keep more income in the basic rate band.

Keeping good records

Whether your dividends come from a listed company or your own business, keep the dividend vouchers or statements you receive. They show the company, the payment date and the amount, which you'll need for your tax return. Remember that dividends are taxed in the tax year they're paid, not when the company's profits were made. If you hold shares on an investment platform outside an ISA, most platforms provide an annual tax pack that lists all the dividends you received, which makes completing Self Assessment much easier.