Dividend tax

Dividend tax is charged on dividend income above the £500 dividend allowance. It's separate from income tax and National Insurance, with its own three-band structure.

Rates for 2026-27: 10.75% at the basic rate, 35.75% at the higher rate, and 39.35% at the additional rate. The ordinary and upper rates each rose 2pp from 6 April 2026. The band depends on where the dividends sit in your total income — they stack on top of salary, pension, rental, and other income.

Dividends use bandwidth but pay no NI. That's why the salary + dividend split is the default for Ltd directors: salary up to the Personal Allowance costs nothing in income tax, and dividends above that face lower headline rates than equivalent salary. Corporation Tax is already paid on the profit before dividends, so the effective rate is CT plus dividend tax combined — but still usually lower than PAYE on an equivalent salary.

Scottish taxpayers use the standard UK dividend tax rates — dividend income is a reserved matter, not devolved.

Related terms

• Dividend allowance — A tax-free portion of dividend income — £500 for 2026-27 (down from £2,000 in 2022-23).
• Corporation Tax — Tax on company profits — 19% small profits rate up to £50k, 25% main rate above £250k, with marginal relief between.
• Personal Allowance — The first slice of income you can earn tax-free each year — £12,570, frozen until April 2031.
• Higher-rate threshold — The point where income tax jumps from 20% to 40% — £50,270, frozen until April 2031.
• Additional rate — The top income tax band — 45% on income above £125,140 (lowered from £150,000 in April 2023).