The short answer
- The first £500 of dividends is tax-free.
- Above that: 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% in the additional-rate band.
- Dividends are taxed after your other income, so your salary decides the rate.
- Dividends in an ISA or pension are tax-free.
Dividend tax rates for 2026/27
| Band | Taxable income | Dividend rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Dividend allowance | First £500 of dividends | 0% |
| Basic rate | £12,571 to £50,270 | 10.75% |
| Higher rate | £50,271 to £125,140 | 35.75% |
| Additional rate | Over £125,140 | 39.35% |
The same rates apply in England, Wales, Scotland and Northern Ireland.
The £500 dividend allowance
The dividend allowance makes the first £500 of dividends tax-free, but those dividends still count towards your income and use up band space. That can push other dividends into a higher band. The allowance was £2,000 until April 2023 and £1,000 in 2023/24.
The Personal Allowance comes first
If your other income is below £12,570, dividends use up the rest of your Personal Allowance before the dividend allowance. Someone with no other income can receive £13,070 of dividends tax-free.
How dividends are stacked on other income
Income tax is worked out in a fixed order: salary, pensions and other non-savings income first, then savings interest, then dividends. Dividends are always the top slice. So the more you earn, the higher the rate on your dividends.
- Salary uses the Personal Allowance and £32,430 of the basic band£45,000
- Next £500 of dividends: allowance£0
- £4,770 left in the basic band at 10.75%£513
- £4,730 in the higher band at 35.75%£1,691
Worked examples
| Other income | Dividends | Dividend tax |
|---|---|---|
| £0 | £20,000 | £744.98 |
| £30,000 | £2,000 | £161.25 |
| £40,000 | £8,000 | £806.25 |
| £60,000 | £5,000 | £1,608.75 |
| £60,000 | £20,000 | £6,971.25 |
| £130,000 | £10,000 | £3,738.25 |
What changed in April 2026
The November 2025 Budget raised the basic and higher dividend rates by 2 percentage points from 6 April 2026: from 8.75% to 10.75%, and from 33.75% to 35.75%. The additional rate stayed at 39.35%. On £5,000 of dividends above the allowance, that adds £90 a year for a basic or higher-rate taxpayer. Savings income rates are due to rise by 2 points from April 2027.
Company directors
Many directors of small companies take a low salary and the rest as dividends, because dividends do not attract National Insurance. Dividends are paid from profits after Corporation Tax.
- Salary covered by the Personal Allowance£12,570
- Dividends£37,700
- Allowance£500 at 0%
The dividend vs salary calculator works out the best mix for your company, including Corporation Tax and employer costs.
The £100,000 trap
Between £100,000 and £125,140, you lose £1 of Personal Allowance for every £2 of income. Dividends in this range are taxed at 35.75%, plus the effect of the lost allowance, giving an effective rate of 55.75% on the next £100. Pension contributions can bring income back below £100,000.
Scottish taxpayers
Scottish rates and bands apply only to non-savings income such as salary. Dividends use the UK rates and bands, based on where your total income falls in the UK structure. A Scottish taxpayer with the same income and dividends as someone in England pays the same dividend tax, but different tax on their salary.
Funds, ETFs and foreign dividends
- UK shares
- Dividends paid in cash or reinvested
- Equity funds
- Distributions and accumulated income
- Foreign shares
- In pounds, with credit for some foreign tax
- Bond funds
- Funds over 60% in bonds or cash pay interest
- Cash
- Savings accounts and money market funds
Accumulation units still count: income reinvested inside the fund is taxable each year, even though you receive nothing. Check your annual tax voucher.
Ways to pay less
- Hold dividend-paying investments in an ISA, where dividends are tax-free.
- Use “bed and ISA” to move investments into an ISA each year.
- Hold shares in the name of a spouse or civil partner with a lower income.
- Pay into a personal pension to extend your basic-rate band.
- Prefer growth investments in a general account, and income investments in an ISA or pension.
- All in your name£3,396.25
- Half each£2,092.50
Reporting and paying
- Under £10,000Tell HMRC
If tax is due, it can usually be collected through your tax code.
- £10,000 or moreSelf Assessment
You must file a tax return.
- 31 JanuaryPay any tax due
Payments on account may also be needed.
What a dividend is
A dividend is a share of a company’s profits paid to its shareholders. Companies pay dividends from profits that have already been taxed through Corporation Tax, which is why dividends are taxed at lower rates than salary and carry no National Insurance. Funds that hold shares pass on the dividends they receive as “distributions”, which are taxed in the same way.
Dividends are usually paid twice a year, though some companies pay quarterly. They are taxed in the tax year they are paid, not when the profits were made.
Dividend yields and income investing
The dividend yield is the yearly dividend as a percentage of the share price. A yield of 4% on a £100,000 portfolio produces £4,000 a year. Only £500 of that is covered by the allowance, so a higher-rate taxpayer would pay £1,251.25 on the rest. Holding the same portfolio in an ISA would remove the tax entirely.
| Portfolio | 2% yield | 4% yield |
|---|---|---|
| £25,000 | £500 | £1,000 |
| £50,000 | £1,000 | £2,000 |
| £100,000 | £2,000 | £4,000 |
Dividends and savings interest together
Savings interest is taxed before dividends. If you have both, interest can use up the basic-rate band and push dividends into the higher band. Basic-rate taxpayers can earn £1,000 of interest tax-free through the Personal Savings Allowance, higher-rate taxpayers £500, and the starting rate for savings can make up to £5,000 more tax-free for people with low other income. Add your savings interest under More options to see the combined effect.
Dividends and benefits
Means-tested benefits usually ignore the dividends themselves and look at the value of the shares as capital instead. For Universal Credit, capital over £6,000 reduces the award and over £16,000 stops it. For Pension Credit, capital over £10,000 is treated as giving an assumed income. Directors paying themselves dividends from their own company may have the company’s profits treated as self-employed earnings for Universal Credit.
Dividends and Child Benefit
The High Income Child Benefit Charge is based on adjusted net income, which includes dividends. A parent earning £55,000 with £8,000 of dividends would have income of £63,000 and start repaying Child Benefit. The High Income Child Benefit Charge calculator shows the effect.
Dividends in retirement
In retirement, your State Pension and other pensions use up your Personal Allowance and basic-rate band first, and dividends sit on top. Many retirees keep income investments in ISAs, where withdrawals are tax-free and do not affect the tax on their pension. Drawing tax-free cash from a pension does not use up any of your bands.
Shares held for children
Children have their own Personal Allowance and dividend allowance. But if a parent gives a child money that produces more than £100 of income a year, the whole amount is taxed as the parent’s income. Junior ISAs and pensions avoid this rule, and gifts from grandparents are not affected.
How dividend tax has changed
| Tax year | Allowance | Basic rate |
|---|---|---|
| 2016/17 to 2017/18 | £5,000 | 7.5% |
| 2018/19 to 2021/22 | £2,000 | 7.5% |
| 2022/23 | £2,000 | 8.75% |
| 2023/24 | £1,000 | 8.75% |
| 2024/25 to 2025/26 | £500 | 8.75% |
| 2026/27 | £500 | 10.75% |
Over ten years, the tax-free allowance has fallen by 90% and the basic rate has risen by more than 40%.
Keeping records
Keep dividend vouchers and annual tax statements from your platform or fund manager. They show the dividends paid, any foreign tax taken, and income accumulated in funds. HMRC may ask for these if you file a tax return.
Common mistakes
- Forgetting accumulated income in accumulation funds.
- Assuming the £500 allowance does not use up band space.
- Missing the £10,000 Self Assessment threshold.
- Treating bond fund distributions as dividends: they are interest.
Ex-dividend and payment dates
To receive a dividend, you must own the shares before the ex-dividend date. If you sell on or after that date, you still get the dividend. The tax point is the payment date. For directors, a dividend is paid when the money is made available to you, such as when it is credited to your director’s loan account, so the timing can be chosen to fall in the most efficient tax year.
Foreign withholding tax
Many countries take tax from dividends before they are paid to UK investors. US shares usually have 15% withheld if you have completed a W-8BEN form, or 30% if not. You can usually set the foreign tax against UK tax on the same dividends, up to the UK tax due, but any excess is lost. In an ISA, US tax is usually still withheld even though there is no UK tax to set it against, while UK pension schemes such as SIPPs can often receive US dividends without withholding.
Dividend reinvestment
Many platforms let you reinvest dividends automatically, buying more shares or fund units. This helps your investment grow, but the reinvested dividends are taxed just as if you had received the cash. Each reinvestment also adds to your base cost for Capital Gains Tax, so record the amounts to avoid paying tax twice when you sell.
A year-end checklist
- Use this year’s £20,000 ISA allowance, moving dividend payers in first.
- Check whether your income is near £50,270, £100,000 or £125,140, where rates jump.
- Consider a personal pension contribution to extend your basic-rate band.
- Review whose name investments are held in, if you are married or in a civil partnership.
- Gather dividend statements ready for your tax return.