UK Dividend Tax Calculator
Dividend income from shares or a limited company is taxed differently from salary. From April 2026, dividend tax rates rose by 2 percentage points — basic rate from 8.75% to 10.75%, higher rate from 33.75% to 35.75%. You still receive a £500 tax-free dividend allowance for 2026/27.
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A common mistake is assuming dividends are taxed in isolation. In reality, dividend income sits on top of your other income, so if your salary already uses your basic rate band, your dividends are taxed at higher rates. Dividends within an ISA are completely tax-free.
The 2026/27 rate increase means a basic rate taxpayer now pays £107.50 tax per £1,000 of taxable dividends, up from £87.50 — a 23% increase in the dividend tax bill. Understanding your dividend tax position helps you plan withdrawals tax-efficiently. Enter your salary and dividend income below to see exactly how much tax you'll pay.
Your Income Details
Gross dividends received in the tax year
Salary, self-employment, pensions, rental income, etc.
Your tax band:
Higher Rate (40%)
2026/27 Dividend Allowance: £500
Reduced from £1,000 in 2023/24 and £2,000 in 2022/23
Dividend Tax Calculation
Allowance + any unused personal allowance
Tax by Band:
2026/27 Dividend Tax Rates:
- • Basic rate taxpayers: 10.75%
- • Higher rate taxpayers: 35.75%
- • Additional rate taxpayers: 39.35%
What this means for your dividend income
From April 2026, dividends cost you more: 10.75% basic, 35.75% higher, 39.35% additional after the £500 allowance. The additional rate is unchanged. A higher-rate director taking £30,000 in dividends now pays roughly £590 more tax than before the rate hike.
If you're a company director, the most tax-efficient extraction usually mixes a small salary up to the NI threshold (preserves State Pension entitlement, reduces Corporation Tax) with the rest as dividends. Run the numbers through the Director Salary & Dividends Calculator to find your optimal split.
Dividend Tax vs Income Tax: What's the Difference?
Dividends are taxed differently from employment income because the company paying them has already paid Corporation Tax on its profits. To avoid "double taxation," dividend tax rates are lower than income tax rates:
| Tax Band | Income Tax | Dividend Tax |
|---|---|---|
| Basic rate | 20% | 10.75% |
| Higher rate | 40% | 35.75% |
| Additional rate | 45% | 39.35% |
The difference roughly reflects the Corporation Tax already paid by the company. For basic rate taxpayers, dividends are significantly more tax-efficient than salary.
Why Are Dividends Taxed at Different Rates?
The Tax Journey of Company Profits
- Company earns £100 profit
- Corporation Tax (25%) is paid: £25
- £75 remains for dividends
- Shareholder receives £75 dividend
- Dividend tax is then paid on the £75
Without lower dividend rates, profits would be taxed twice at full rates—once in the company and again in the shareholder's hands. The reduced rates recognise that tax has already been paid at the corporate level.
For Company Directors
This is why many limited company directors pay themselves a small salary (to maximise NI efficiency) and take the rest as dividends. Our Take-Home Pay Calculator can help you compare the options.
How the Dividend Allowance Works
The dividend allowance is a tax-free amount of dividend income you can receive each year. For 2026/27, this is £500.
Important: The allowance has been significantly reduced:
- • 2022/23: £2,000
- • 2023/24: £1,000
- • 2024/25: £500
- • 2025/26: £500
- • 2026/27: £500
Key Points:
- Uses your tax bands: The allowance uses up part of your basic or higher rate band, even though it's tax-free
- Applies first: The allowance is always applied before any taxable dividends are calculated
- Use it or lose it: You cannot carry unused allowance to the next tax year
- Per person: Each individual has their own allowance—couples can receive £1,000 total tax-free if they share ownership
Frequently Asked Questions
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