Dividend tax explained
Everything you need to know about how dividends are taxed in 2026/27 — from the £500 allowance to the rates, worked examples, and how to report to HMRC.
What are dividends?
A dividend is your share of a company's profits, paid out because you own shares in it. You might receive dividends from listed company shares, investment funds, investment trusts, or — very commonly — from your own limited company if you're a shareholder-director.
Dividends are taxed differently from salary. They have their own rates — generally lower — and their own £500 annual allowance. But they don't sit in isolation: your salary and other income are counted first, and your dividends are stacked on top. Where they land in the tax bands determines what you pay.
The dividend allowance and personal allowance
Two separate allowances can shelter dividend income from tax.
First, your Personal Allowance — £12,570 for 2026/27. If your salary and other income don't use it all up, the leftover portion can be applied to dividends before anything else is counted.
Second, the dividend allowance. On top of the Personal Allowance, the first £500 of dividend income each year is taxed at 0%. This applies to your total dividends across all holdings — not per share or per fund.
One important point: the dividend allowance is not a deduction. The £500 is still taxed at 0%, but it still occupies space in your tax bands. Near a band boundary, this can push other dividend income into a higher rate even though no tax is charged on the allowance itself.
Dividends held inside a Stocks and Shares ISA are completely tax-free. They don't use the dividend allowance, don't count as taxable income, and don't need to be reported to HMRC.
Dividend tax rates for 2026/27
The rate you pay depends on which Income Tax band your dividends fall into. Note that from 6 April 2026, the basic and higher rates each rose by 2 percentage points.
| Tax band | 2024/25 | 2025/26 | 2026/27 |
|---|---|---|---|
| Basic rate (up to £50,270 total income) | 8.75% | 8.75% | 10.75% |
| Higher rate (£50,271–£125,140) | 33.75% | 33.75% | 35.75% |
| Additional rate (above £125,140) | 39.35% | 39.35% | 39.35% |
Scotland sets its own bands for earned income, but dividend tax rates are UK-wide. Wherever you live, the same dividend rates above apply.
Worked examples
These examples all use the 2026/27 rates, the standard £12,570 Personal Allowance, and the £500 dividend allowance, assuming England, Wales or Northern Ireland bands.
Small dividends below the allowance
£30,000 salary + £400 dividends in a general account
The £400 is fully covered by the £500 dividend allowance.
Basic-rate taxpayer above the allowance
£35,000 salary + £4,000 dividends in a general account
£500 is taxed at 0% (allowance). The remaining £3,500 falls in the basic-rate band at 10.75%.
Higher-rate taxpayer
£60,000 salary + £10,000 dividends in a general account
£500 at 0% (allowance). The remaining £9,500 falls in the higher-rate band at 35.75%.
Company director on a low salary
£12,570 salary + £40,000 dividends
The salary uses the full Personal Allowance. £500 of dividends at 0% (allowance). £37,200 fills the basic-rate band at 10.75%. The final £2,300 spills into the higher-rate band at 35.75%.
ISAs, pensions and funds
Where your investment is held can matter more than how much dividend you receive.
| Where held | Tax treatment | What to do |
|---|---|---|
| Stocks and shares ISA | Tax-free | Leave out of your dividend tax calculation entirely — no reporting needed. |
| Pension / SIPP | Tax-free inside the pension | Leave out of your dividend tax calculation entirely. |
| General investment account | Potentially taxable after allowances | Include when checking your tax position. |
| Your own limited company | Potentially taxable after allowances | Keep dividend vouchers and board minutes. Include taxable dividends in Self Assessment. |
Fund distributions can count as either a dividend or interest, depending on what the fund mainly invests in. Equity funds usually pay dividend distributions; bond and cash funds usually pay interest distributions (which follow savings rules). Your annual tax statement will confirm which type you received.
How to report dividend income to HMRC
HMRC doesn't collect dividend tax automatically when a dividend is paid, so you need to take action yourself.
If your dividends are within the £500 allowance, or they come entirely from ISAs, you don't need to tell HMRC anything.
If you have tax to pay and your dividend income is up to £10,000, you can report it via Self Assessment if you already file one. If you don't, you can ask HMRC to adjust your tax code, or call the helpline. Either way, you must tell HMRC after 5 April and before 5 October.
If your dividend income is over £10,000, you must complete a Self Assessment tax return. If you don't already file one, register with HMRC by 5 October after the end of the tax year in which you received the dividends.
Keep records of dividends paid, the dates, and the company or fund that paid them. Limited company directors should also retain board minutes and dividend vouchers.
A note for limited company directors
If you're a director-shareholder, dividends are one of the most tax-efficient ways to draw income from your company — but only when there are sufficient retained profits to support them. Drawing more than the available profits means some of those drawings may be treated as a director's loan rather than a dividend, which has different tax consequences.
Getting the salary/dividend split right for your circumstances is one of the most valuable things a good accountant can do for you. We help Tarka Accounts clients work through this every year.
Download our dividend tax newsletter
We've put together a plain-English newsletter covering the key dividend tax changes for 2026/27. Download it below or get in touch if you'd like to talk through what it means for you.
Not sure how this applies to you?
Dividend tax depends on your total income, how your company is structured, and how you draw money from it. We're happy to talk it through — no jargon, no obligation.
Get in touchThis guide is general information about how the rules work, not personal tax advice. Tax depends on your individual circumstances and the rules can change. Speak to a qualified adviser before making decisions.