Dividend Tax Rates 2026/27
If you receive dividends from shares or as a company director, you need to understand how dividend tax works. This guide covers the 2026/27 rates and planning strategies.
Dividend Allowance 2026/27
The tax-free dividend allowance for 2026/27 is £500. This is significantly reduced from previous years:
| Tax Year | Dividend Allowance |
|---|---|
| 2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 onwards | £500 |
Dividend Tax Rates
After your £500 allowance, dividends are taxed at:
| Tax Band | Dividend Tax Rate |
|---|---|
| Basic Rate (income up to £50,270) | 8.75% |
| Higher Rate (£50,271 - £125,140) | 33.75% |
| Additional Rate (over £125,140) | 39.35% |
How Dividends Are Taxed
Dividends are added on top of your other income to determine which tax band applies:
Example: £30,000 salary + £15,000 dividends
- Salary uses Personal Allowance and Basic Rate band
- Dividends: First £500 tax-free
- Remaining £14,500 dividends taxed at 8.75% = £1,269
Example: £55,000 salary + £20,000 dividends
- Salary puts you into Higher Rate band
- Dividends: First £500 tax-free
- Remaining £19,500 dividends taxed at 33.75% = £6,581
Director Salary vs Dividends Strategy
For company directors, the optimal mix of salary and dividends can minimise overall tax.
2026/27 Optimal Strategy for Single Director:
| Element | Amount | Tax/NI |
|---|---|---|
| Salary (to PT) | £12,570 | £0 income tax, £0 employee NI |
| Employer NI | On salary above £9,100 | 15% employer NI |
| Dividends | Remainder | 8.75% - 39.35% |
Considerations:
- Salary is tax-deductible for Corporation Tax
- Dividends are paid from post-tax profits
- Balance depends on company profit levels
Tax on £50,000 Total Income
Scenario A: £50,000 Salary
- Income Tax: £7,486
- Employee NI: £2,994
- Total: £10,480
Scenario B: £12,570 Salary + £37,430 Dividends
- Income Tax on salary: £0
- NI on salary: £0
- Dividend tax: (£37,430 - £500) × 8.75% = £3,231
- Corporation Tax on profits: £37,430 × 19% = £7,112
- Total: £10,343
The dividend route saves approximately £137, but the difference varies with higher incomes.
Planning Tips
- Use both spouses' allowances - If married, both can take £500 tax-free
- Time your dividends - Spread across tax years if possible
- Consider pension contributions - Reduce taxable income first
- Review annually - Tax rates and optimal strategies change
Calculate Your Dividend Tax
Use our Dividend Tax Calculator to see exactly how much tax you'll pay on your dividend income.