Dividend tax explained (2026/27)

Dividend tax rates

Dividend rates are the same across the UK, including Scotland, because dividend income is not covered by Scottish Income Tax rates. The band your dividend falls into depends on your total taxable income.

How the calculation works

Dividends are treated as the top slice of your income. Salary, pensions, self-employment profit and rent come first, then savings interest, then dividends. Your personal allowance is used against non-dividend income first; any unused allowance covers dividends at 0%.

The £500 dividend allowance is not a deduction from income. It is a 0% rate band, so the dividends it covers still use up your basic or higher rate band. That can push other dividends into a higher band.

ISAs are outside this altogether: dividends from shares in an ISA or a pension are tax-free and do not use your allowance.

Example 1: basic-rate taxpayer

Salary £40,000 plus £10,000 of dividends.

• Salary uses the £12,570 personal allowance; £27,430 is taxed at 20%
• Basic rate band left: £37,700 - £27,430 = £10,270, so all dividends are in the basic band
• £500 at 0%, £9,500 x 10.75% = £1,021.25 dividend tax

Example 2: dividends straddling the higher-rate threshold

Salary £45,000 plus £10,000 of dividends.

• Taxable salary: £32,430, leaving £5,270 of basic rate band
• £500 allowance at 0% (uses band), then £4,770 x 10.75% = £512.78
• Remaining £4,730 x 35.75% = £1,690.98
• Total dividend tax: £2,203.75

Example 3: higher-rate taxpayer

Salary £60,000 plus £5,000 of dividends: £500 at 0%, then £4,500 x 35.75% = £1,608.75.

Company directors: salary plus dividends

Director-shareholders typically take a salary of £12,570 (using the personal allowance without employee NI) and the rest as dividends. With dividends of £30,000 on top, the tax is £500 at 0% and £29,500 x 10.75% = £3,171.25. Remember dividends are paid from profits that have already borne Corporation Tax at 19% to 25%, so the combined rate is much higher than the dividend rate alone.

Dividends must be paid from distributable reserves and properly declared with board minutes and vouchers. Dividends declared when there are insufficient profits can be treated as unlawful and may need repaying.

How you pay dividend tax

• Dividends within the £500 allowance: nothing to report.
• Over £500 and up to £10,000: tell HMRC, who can collect it through your tax code, or include it in an existing Self Assessment return.
• Over £10,000: you must file a Self Assessment return. Tax is due by 31 January after the tax year, and may trigger payments on account.

Dividends with no other income

If dividends are your only income, the personal allowance covers them first, so £13,070 of dividends a year can be completely tax-free.

With £20,000 of dividends and nothing else, £12,570 is covered by the personal allowance, the next £500 by the dividend allowance, and the remaining £6,930 is taxed at 10.75%: £744.98 in total. This is common for retired investors and for company owners who take no salary in a particular year.

Director dividends on top of a £12,570 salary

For a director paid a £12,570 salary, every pound of dividends uses the basic-rate band until £37,700 of dividends, then the higher rate applies.

The combined rate on company profit

Dividend rates look low only because the profit has already paid Corporation Tax. The rate that matters to a company owner is the combined one.

At the 19% small profits rate, £100 of profit leaves £81 to pay as a dividend. A basic-rate shareholder then pays 10.75%, keeping £72.29, a combined rate of 27.7%. For a higher-rate shareholder the combined rate is 48.0%. At the 25% main rate the figures are 33.1% and 51.8%. Compare these with 28% (20% tax plus 8% NI) and 42% (40% plus 2%) on salary, before employer NI.

Funds, foreign shares and reinvested dividends

• Accumulation units: income reinvested inside a fund is still taxable as if you received it. Your platform's annual tax statement shows the amount.
• Bond and cash funds: funds holding mostly interest-bearing assets pay interest distributions, which are taxed as savings income, not dividends.
• Foreign shares: overseas dividends are taxable in the UK at dividend rates. Tax withheld abroad can usually be offset through Foreign Tax Credit Relief, normally limited to the rate in the relevant tax treaty.
• Dividend reinvestment plans: reinvesting does not avoid tax. The dividend is taxable when paid, and the new shares have a CGT cost equal to the amount reinvested.

Dividends count for the £100,000 taper and Child Benefit

Dividends count in full towards adjusted net income, so they can trigger the High Income Child Benefit Charge from £60,000 and the personal allowance taper from £100,000, even when the dividend tax itself looks modest.

A company owner can control this by timing. An interim dividend is taxed in the tax year it is paid, so paying part of it after 5 April moves it into the next year's allowances and bands. Employer pension contributions from the company do not count towards adjusted net income at all.