How dividend tax works
Dividend tax is charged on dividend income from UK and most foreign companies and funds. The key rule: dividends are taxed on top of all your other income — your salary, pension and savings income first, then your dividends. The dividend tax rate you pay depends on which income tax band your dividends land in.
Every taxpayer also gets a £500 dividend allowance for 2026/27. The first £500 of dividend income in the tax year is tax-free — this is an allowance on top of your Personal Allowance, not a separate band. Once dividends exceed £500, the excess is taxed at your dividend rate.
2026/27 dividend tax rates
Rates rose for 2026/27 (announced in the Autumn Budget 2025). The £500 allowance and the additional rate are unchanged; basic and higher rates both increased:
| Income tax band | 2025/26 rate | 2026/27 rate |
|---|---|---|
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
These rates apply to dividend income above the £500 allowance, and are set by your income tax band, not your dividend band. GOV.UK — Income Tax rates and allowances · 2026/27
Worked examples
All examples use your taxable income (income after your Personal Allowance) to place you in a band. The dividend tax is then calculated on the dividends that exceed the £500 allowance:
| Your other taxable income | Dividend income | Tax band | Dividend tax due |
|---|---|---|---|
| £0 | £2,000 | Basic | £161.25 |
| £30,000 | £8,000 | Basic | £806.25 |
| £50,000 | £5,000 | Higher | £1,608.75 |
| £130,000 | £5,000 | Additional | £1,770.75 |
Check the first row: £2,000 of dividends with no other income — the £500 allowance is tax-free, and the remaining £1,500 is taxed at 10.75% (£161.25). In the higher-rate row, all £5,000 of dividends sit above the basic-rate band once added to your £50,000 income, so the £4,500 above the allowance is taxed at 35.75%.
Why dividend tax rates went up
Dividend tax rates were raised for 2026/27 as part of the government's Autumn Budget 2025 — the basic rate rose from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. The £500 allowance introduced in 2024/25 stays in place. This makes tax-efficient wrappers such as ISAs more valuable for dividend-paying investments.
Dividends inside an ISA are tax-free
Dividends on shares and funds held inside an ISA pay no dividend tax at all — the £500 allowance does not apply inside an ISA because the wrapper itself is tax-free. For anyone holding dividend-paying investments outside a pension, an ISA is usually the most tax-efficient home for them.