Dividends can be a tax-efficient way for company directors and shareholders to take money from a limited company. However, dividend tax rules can change from year to year, so it is important to understand the current rates, the dividend allowance and how much tax you may need to pay.
For the 2025/26 tax year, the dividend allowance is £500. Dividend income above this allowance is taxed at 8.75%, 33.75% or 39.35%, depending on your Income Tax band.
From 6 April 2026, the basic and higher dividend tax rates are increasing. For the 2026/27 tax year, dividend income above the allowance will be taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
This guide explains the current UK dividend tax rates, what is changing from April 2026, and how dividend tax works in practice.
What is dividend tax?
Dividend tax is the tax you pay on dividend income from shares.
If you are a shareholder in a limited company, you may receive dividends when the company distributes profits after Corporation Tax. Many limited company directors take a mixture of salary and dividends, depending on their circumstances. If you are unsure how regularly dividends can be taken, our guide on how often you can take dividends from your limited company explains this in more detail.
You may also receive dividends from investments, such as shares in listed companies or investment funds. Dividends held inside an ISA are tax-free, but dividends received outside an ISA may be taxable if they exceed your dividend allowance.
What is the dividend allowance?
The dividend allowance is the amount of dividend income you can receive each tax year before dividend tax is due.
For both 2025/26 and 2026/27, the dividend allowance is £500.
This means you can receive up to £500 in dividends tax-free. Any dividend income above this amount may be taxed depending on your overall income and tax band.
| Tax year | Dividend allowance |
| 2025/26 | £500 |
| 2026/27 | £500 |
The dividend allowance is separate from your Personal Allowance. If you still have unused Personal Allowance, this may also cover some of your dividend income before dividend tax applies.
UK dividend tax rates for 2025/26
For the 2025/26 tax year, dividend income above the £500 allowance is taxed at the following rates:
| Income Tax band | Dividend tax rate 2025/26 |
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
The rate you pay depends on your total taxable income. This includes your salary, dividends, savings interest, rental income and any other taxable income.
UK dividend tax rates for 2026/27
From 6 April 2026, the dividend ordinary rate and dividend upper rate are increasing by 2 percentage points.
For the 2026/27 tax year, dividend income above the £500 allowance will be taxed at the following rates:
| Income Tax band | Dividend tax rate 2026/27 |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
The additional rate remains unchanged at 39.35%.
Dividend tax rates: 2025/26 vs 2026/27
| Tax year | Dividend allowance | Basic rate | Higher rate | Additional rate |
| 2025/26 | £500 | 8.75% | 33.75% | 39.35% |
| 2026/27 | £500 | 10.75% | 35.75% | 39.35% |
The main change is that from April 2026, basic rate and higher rate taxpayers will pay more tax on dividend income above the dividend allowance.
How is dividend tax calculated?
Dividend tax is calculated after your other income has been taken into account.
To work out how much dividend tax you may pay, you need to:
- Add together your salary and other taxable income.
- Add your dividend income.
- Deduct any available Personal Allowance.
- Deduct the £500 dividend allowance.
- Apply the correct dividend tax rate based on your Income Tax band.
You may pay dividend tax at more than one rate if your dividend income crosses into a higher tax band.
Example: dividend tax in 2025/26
Let’s say you receive £5,000 in dividends during the 2025/26 tax year and you are a basic rate taxpayer.
| Calculation | Amount |
| Total dividend income | £5,000 |
| Less dividend allowance | £500 |
| Taxable dividends | £4,500 |
| Dividend tax rate | 8.75% |
| Dividend tax due | £393.75 |
In this example, you would pay £393.75 in dividend tax.
Example: dividend tax in 2026/27
Using the same example for the 2026/27 tax year, the calculation changes because the basic dividend tax rate increases to 10.75%.
| Calculation | Amount |
| Total dividend income | £5,000 |
| Less dividend allowance | £500 |
| Taxable dividends | £4,500 |
| Dividend tax rate | 10.75% |
| Dividend tax due | £483.75 |
In this example, the dividend tax due would increase from £393.75 to £483.75.
That is an increase of £90 on £4,500 of taxable dividends.
Dividend tax for company directors
Many limited company directors take income through a combination of salary and dividends. This can still be tax-efficient in some cases, but the most suitable approach depends on your company profits, salary level, other income and wider tax position.
With the basic and higher dividend tax rates increasing from April 2026, directors should review their salary and dividend strategy before the new tax year. Our guide to the most tax-efficient director salary and dividends strategy explains this in more detail.
This is particularly important if you:
- regularly take dividends from your limited company
- are close to the higher rate tax threshold
- have other sources of income
- are planning a large dividend payment
- want to manage personal tax and Corporation Tax efficiently
A tax-efficient strategy should consider both the company and the individual, rather than looking at dividend tax in isolation. For more tailored support, our personal tax planning team can help you review your personal position, while our corporate tax planning service can help with wider company tax planning.
Do you pay dividend tax on shares in an ISA?
No, dividends received from shares or funds held inside an ISA are tax-free.
This means you do not pay dividend tax on ISA dividends, and they do not use up your dividend allowance.
Dividends from shares or funds held outside an ISA may be taxable if they exceed your dividend allowance.
Do dividends count as income?
Yes, dividends count as taxable income.
Your dividend income is added to your other income to work out which tax band applies. This means dividend income can push some of your income into a higher tax band.
For example, if your salary already uses most of your basic rate band, some or all of your dividends may be taxed at the higher dividend tax rate.
When do you pay dividend tax?
The way you pay dividend tax depends on how much dividend income you receive and whether you already complete a Self Assessment tax return.
You may need to report dividend income through Self Assessment if your dividends are above the allowance or if HMRC asks you to file a tax return.
Company directors who receive dividends will usually need to keep accurate dividend records, including board minutes and dividend vouchers. Accurate company records are also important, so it is worth making sure your bookkeeping and accounting processes are up to date.
How can you reduce dividend tax?
There are several ways to manage dividend tax, depending on your circumstances. These may include:
- making use of your dividend allowance
- using ISAs where appropriate
- reviewing your salary and dividend mix
- spreading dividend payments across tax years where possible
- considering pension contributions
- planning around tax thresholds
- reviewing income between spouses or civil partners, where suitable
The right approach depends on your overall income, company profits and personal tax position. Professional advice is recommended before making significant dividend decisions.
Should you take salary or dividends?
For many limited company directors, a combination of salary and dividends can be effective. However, the best mix depends on several factors, including:
- Corporation Tax
- National Insurance
- dividend tax rates
- pension contributions
- available company profits
- your personal income needs
- your long-term financial plans
Because dividend tax rates are changing from April 2026, it is worth reviewing your director salary and dividend strategy ahead of the new tax year.
Need help with dividend tax planning?
Dividend tax can affect company directors, shareholders and investors differently depending on their wider income and tax position.
At Ryans, we can help you understand your dividend tax position, review your salary and dividend strategy, and plan tax-efficiently for the current and upcoming tax year.
If you would like advice on dividend tax, personal tax planning or director remuneration, get in touch with our team.
FAQ's
What is the dividend allowance for 2025/26?
The dividend allowance for 2025/26 is £500. This means the first £500 of dividend income can be received tax-free.
Contact UsWhat is the dividend allowance for 2026/27?
The dividend allowance for 2026/27 is expected to remain at £500.
Contact UsWhat are the dividend tax rates for 2025/26?
For 2025/26, dividend income above the allowance is taxed at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
Contact UsWhat are the dividend tax rates for 2026/27?
For 2026/27, dividend income above the allowance is taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
Contact UsAre dividend tax rates increasing?
Yes. From 6 April 2026, the basic dividend tax rate increases from 8.75% to 10.75%, and the higher dividend tax rate increases from 33.75% to 35.75%. The additional rate remains at 39.35%.
Contact UsDo I pay dividend tax if I earn less than the Personal Allowance?
You may not pay dividend tax if your total income is within your Personal Allowance and dividend allowance. However, this depends on your total income for the tax year.
Contact UsDo dividends from an ISA count towards the dividend allowance?
No. Dividends from shares or funds held inside an ISA are tax-free and do not count towards your dividend allowance.
Contact UsDo company directors pay dividend tax?
Yes, company directors who receive dividends may need to pay dividend tax if their dividend income exceeds the available allowance and any unused Personal Allowance.
Contact UsCan I take dividends every month?
You can take dividends regularly if the company has enough distributable profits and the correct records are kept. Dividends should not be treated in the same way as salary, and proper dividend paperwork should be maintained.
Contact UsShould I review my dividend strategy before April 2026?
Yes. Since basic and higher dividend tax rates are increasing from April 2026, company directors and shareholders should review their dividend strategy before the new tax year.
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