What is Dividend Tax? UK Definition 2026/27
Quick Answer
Tax on dividend income at 8.75%, 33.75%, or 39.35% depending on your tax band.
Definition of Dividend Tax
Dividend tax applies to dividends received from shares in UK and foreign companies. The first £500 is tax-free (dividend allowance). Above this, rates depend on your income tax band: 8.75% basic rate, 33.75% higher rate, 39.35% additional rate.
Dividend Tax — Key Facts for 2026/27
| Dividend Allowance | £500 |
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
How Dividend Tax Works — Example
- 1Salary: £12,570 (uses Personal Allowance)
- 2Dividends: £40,000
- 3Tax-free (allowance): £500
- 4Basic rate band: £37,200 @ 8.75% = £3,255
- 5Remaining: £2,300 @ 33.75% = £776.25
- 6Total dividend tax: £4,031.25
How Dividend Tax Affects Your Tax
Dividends are tax-efficient compared to salary for company owners. Combined with Corporation Tax, effective rates are often lower than PAYE. The optimal salary/dividend mix depends on individual circumstances.
Official HMRC Guidance on Dividend Tax
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Tax on dividendsFrequently Asked Questions about Dividend Tax
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.