Guide · tax year 2026/27
How dividend tax works
The dividend allowance, dividend tax rates, and how dividends sit on top of your other income.
Dividends are payments a company makes to its shareholders. If you get dividends, from shares you hold or from your own company, they are taxed differently from wages. This guide explains the dividend allowance, the rates, and the rule that decides which rate you pay, using 2026/27 figures.
The dividend allowance
You get a dividend allowance of £500 each year, and you only pay tax on dividend income above it (GOV.UK: tax on dividends). You also do not pay tax on any dividend income that falls within your Personal Allowance, if you have some of it left after your other income. Dividends from shares in an ISA are not taxed.
Dividend tax rates
| Band your dividends fall in | Rate |
|---|---|
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Dividends are the top slice of your income
Which band your dividends fall in depends on your other income. HMRC treats earnings, pensions and similar income as the first slice, savings income as the next, and dividend income as the top slice (HMRC manual SAIM1090). So your salary fills up the bands first, and your dividends sit on top.
The dividend allowance has a catch: dividends within it are not taxed, but they still count towards your basic or higher rate band (HMRC dividend allowance factsheet). That can push more of your dividends into a higher band.
A worked example
GOV.UK uses this example. You earn £29,570 in wages and get £3,000 in dividends. After your Personal Allowance, £17,000 of wages is taxed as normal. Then come the dividends: the first £500 is covered by the dividend allowance, and the remaining £2,500 is in the basic rate band, taxed at 10.75%. The dividend tax is £268.75.
With more income, the dividends reach the higher band. On wages of £45,000 and dividends of £10,000, the dividend tax is £2,203.75, because part of the dividends is taxed at 35.75%.
Scotland
Scottish taxpayers pay the same tax as the rest of the UK on dividends (GOV.UK: Scottish Income Tax). The UK basic rate limit applies to dividend income across the UK (GOV.UK: basic rate limit 2026 to 2028). Scottish rates still apply to wages and pensions.
So in the example above, where dividends are measured against the UK band limits, a Scottish taxpayer pays the same £2,203.75 of dividend tax, but more tax on the wages.
The Personal Allowance taper
Dividends count towards your income for the Personal Allowance taper. If your wages and dividends together are over £100,000, your allowance starts to shrink. See the £100,000 tax trap.
Telling HMRC
If your dividends are more than your unused Personal Allowance and your dividend allowance, you need to report them to HMRC (GOV.UK).
What this guide does not cover
Savings interest may have its own allowances and can change your tax; check GOV.UK. This guide also does not cover company taxes or how a director should split pay between salary and dividends, which needs advice for your own circumstances.
When your Personal Allowance covers dividends
If your other income is below the Personal Allowance, the unused part of the allowance covers dividends first. For example, with other income of £5,000 and dividends of £10,000, £7,570 of the dividends is covered by the rest of your Personal Allowance and £500 by the dividend allowance. The dividend tax is £207.48.
Dividend tax at different incomes
| Other income | Dividends | Dividend tax |
|---|---|---|
| £20,000 | £2,000 | £161.25 |
| £40,000 | £5,000 | £483.75 |
| £60,000 | £10,000 | £3,396.25 |
| £120,000 | £20,000 | £7,506.21 |
As other income rises, the same dividends land in higher bands and cost more tax. In the last row, the combined income is so far over the Personal Allowance taper limit that the allowance falls to £0.
How the allowance uses up your band: an example
Take wages of £49,970, which leaves only a small part of the basic rate band unused, and dividends of £2,000. The first £500 of dividends is covered by the dividend allowance, but it still fills the rest of the basic rate band. So the remaining dividends are taxed at the higher rate of 35.75%, not the basic rate. The dividend tax is £536.25.
That is why our calculator shows which band each part of your dividends falls in. It is easy to assume the allowance comes off the top of your income, but it does not: it sits at the bottom of your dividends.
Keeping a record
Companies usually give shareholders a note of each dividend paid, showing the amount and the date. Keeping these together makes it much easier to work out your dividend income for the tax year and to check it against your allowance and bands. The tax year runs from 6 April to 5 April, and UK dividends are taxed in the tax year they are paid: HMRC's manual says the income charged is "the full amount or value of the dividends paid and other distributions made in the tax year" (HMRC manual SAIM5020).
Common questions
Where can I work out my figure?
Use our dividend tax calculator, which shows each part of your dividends and the rate it is taxed at.
General information for the 2026/27 tax year, not financial or tax advice. We are not HMRC. Found a mistake? See our corrections policy.