Guide
Dividend tax explained
The 2026/27 rates, the order the tax is worked out in, worked examples, and how and when to pay it.
If you run a limited company, most of your income probably arrives as dividends. They’re taxed differently from salary: at lower rates, with no National Insurance, and through Self Assessment rather than PAYE. Here’s how the tax is worked out in 2026/27, with examples.
The 2026/27 rates
| Band | Taxable income | Dividend rate | Salary rate (for comparison) |
|---|---|---|---|
| Dividend allowance | First £500 of dividends | 0% | – |
| Basic rate | Up to £50,270 | 10.75% | 20% |
| Higher rate | £50,271 to £125,140 | 35.75% | 40% |
| Additional rate | Over £125,140 | 39.35% | 45% |
The basic and higher dividend rates went up by two percentage points in April 2026, to 10.75% and 35.75%. The additional rate stayed at 39.35%. The £500 dividend allowance is unchanged.
How the tax is worked out
The order matters, because dividends are treated as the top slice of your income:
- Salary and other income first. Your salary, pension and rental income use up your personal allowance (£12,570) and then the income tax bands.
- Any personal allowance left covers dividends. If your salary is below £12,570, the rest of the allowance applies to your dividends tax-free.
- The £500 dividend allowance. The next £500 of dividends is taxed at 0%, but it still uses up space in whatever band it falls in.
- Everything else at dividend rates. Remaining dividends are taxed at 10.75% while they fit in the basic-rate band, then 35.75%, then 39.35%.
Examples
| Dividends | Dividend tax | Effective rate | Dividends kept |
|---|---|---|---|
| £20,000 | £2,096 | 10.5% | £17,904 |
| £40,000 | £4,821 | 12.1% | £35,179 |
| £60,000 | £11,971 | 20% | £48,029 |
| £100,000 | £27,843 | 27.8% | £72,158 |
At £100,000 of dividends, total income passes £100,000, so your personal allowance starts to shrink by £1 for every £2 over. That pushes more of your income into tax and is why the effective rate jumps. Leaving profit in the company, or making employer pension contributions, can keep you below the line.
Paying it
- Register for Self Assessment by 5 October after the end of the tax year in which you first receive dividends over the allowance.
- Pay by 31 January after the tax year ends. For 2026/27, that’s 31 January 2028.
- Payments on account. If your Self Assessment bill is over £1,000 and less than 80% of your tax was taken at source, HMRC asks for two advance payments towards next year, each half of this year’s bill, on 31 January and 31 July. Your first year can therefore need around 150% of a year’s tax at once, so budget for it.
Common mistakes
- Paying dividends the company can’t afford. Dividends can only come from profit after corporation tax. If they don’t, they may be treated as a director’s loan, with its own tax charges.
- Skipping the paperwork. Hold a board meeting (even on your own), minute it, and issue a dividend voucher for each payment.
- Forgetting the money isn’t all yours. A simple habit is to move a set percentage of each dividend into a tax savings account. The paying yourself guide covers the best salary to pair with your dividends.
This guide is general information, not financial or tax advice. Figures are estimates for England, Wales and Northern Ireland; speak to an accountant before making decisions.