UK Dividend Tax Rates 2026/27: What Company Directors Need to Know
Dividend tax rates for 2026/27 are 10.75%, 35.75% and 39.35%. See what changed, what it costs, and how Bristol directors can plan ahead.
Dividend tax rates for the 2026/27 UK tax year are 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers, after the first £500 of dividend income each year, which remains tax free. Both the basic and higher rates rose by two percentage points from 6 April 2026, making this one of the more significant tax changes facing company directors across the UK this year, particularly here in Bristol where a large number of our clients run their own limited companies.
This guide walks through exactly what changed, what it actually costs you, and what it means for how you pay yourself going forward.
"Both the basic and higher rates rose by two percentage points from 6 April 2026, making this one of the more significant tax changes facing company directors across the UK this year."
In This Article
What are the Dividend Tax Rates for 2026/27?
Dividend income above your Personal Allowance and the £500 Dividend Allowance is taxed according to which UK tax band it falls into.
| Tax band | Dividend tax rate 2026/27 | Dividend tax rate 2025/26 |
|---|---|---|
| Basic rate | 10.75% | 8.75% |
| Higher rate | 35.75% | 33.75% |
| Additional rate | 39.35% | 39.35% |
The Dividend Allowance stays at £500, unchanged from the previous year and both the Personal Allowance of £12,570 and the Dividend Allowance are frozen until at least April 2028. That freeze matters as much as the rate rise itself, since it means more income gets pulled into higher bands each year even without a real increase in earnings.
The freeze on the Personal Allowance and Dividend Allowance matters as much as the rate rise itself — more income gets pulled into higher bands each year even without a real increase in earnings.
Why Did Dividend Tax Rates Go Up in 2026?
The increase was announced at the Autumn Budget 2025 and took effect from 6 April 2026. A few key points explain the change:
- The stated aim was to narrow the gap between tax paid on earned income, such as salary and tax paid on income from assets like dividends
- Dividends have never attracted National Insurance, which is part of why the gap existed in the first place
- The additional rate was left untouched, so the change lands hardest on basic and higher rate taxpayers specifically
- This group covers the majority of small company directors, which is why the change has been felt so widely
How Dividends are Actually Taxed: The "Top Slice" Rule
Dividends are treated as the top slice of your income. Your salary, pension or rental income fills up your Personal Allowance and tax bands first and only then do your dividends get added on top and taxed at whatever band they land in.
A quick worked example
Someone earning £29,570 in wages and receiving £3,000 in dividends would work out as follows:
- Total income comes to £32,570
- Taking off the £12,570 Personal Allowance leaves a taxable income of £20,000
- This sits within the basic rate band
- £500 of the dividends is covered entirely by the Dividend Allowance
- The remaining £2,500 is taxed at 10.75%
If you want to check the salary side of the calculation separately, our UK salary calculator can help you understand how gross salary translates into taxable income.
Worked Example: What the Rise Actually Costs
The two percentage point increase adds up quickly for directors extracting larger dividends.
£50,000 dividend — basic rate
On a £50,000 dividend taken by a basic rate taxpayer, the rise alone adds roughly £1,000 a year compared with the previous rates.
£60,000 dividend — higher rate
A higher rate director extracting £60,000 in dividends is paying around £1,200 more a year from exactly the same profit.
Per £1,000 of basic rate dividends
For every £1,000 of dividend income taxed within the basic rate band, the rise costs an extra £20 compared with the previous year.
This is not a small adjustment buried in the small print, it is a direct, calculable increase in what it costs to take money out of your own company. On a single figure it can look modest, but scaled up across a full year of dividend income, particularly for directors who rely on dividends as their main source of income rather than a top up, the difference becomes significant enough to justify a proper review rather than assuming last year's approach still holds.
See the impact on your own numbers?
Use our free tax calculator for a quick, no obligation estimate of your position.
Salary or Dividends: What's the Optimal Mix for 2026/27?
The traditional approach
For years, the standard route was a low salary set around the National Insurance threshold, historically somewhere between £5,000 and £6,708, with the rest taken as dividends. That approach is no longer automatically the most efficient one.
Why things have shifted
For many directors in 2026/27, a salary set at the full Personal Allowance of £12,570 now makes more sense. If you're unsure how your salary is worked out before considering dividends, our guide explains how annual salary is calculated in the UK, including how regular and irregular income can affect the calculation. A few reasons why:
- Corporation Tax relief on that salary often outweighs the National Insurance cost
- This is particularly true once Employment Allowance is factored in
- The shift is largely down to the Secondary Threshold, the point at which employer National Insurance kicks in, dropping to £5,000, down from £9,100 in April 2025
- Employment Allowance can reduce or remove the employer National Insurance cost on a higher salary entirely for eligible companies
- This is why two directors with similar profits can end up with genuinely different optimal salary levels depending on whether their company qualifies
Whether the old approach or the newer £12,570 salary works better for you depends on your company's profit level, whether you qualify for Employment Allowance, and your personal circumstances more broadly. or contractors and directors operating through their own limited company, understanding what a contractor accountant does can also help when deciding how salary, dividends and other company finances should be managed. This is exactly the kind of decision worth reviewing rather than leaving on autopilot from previous years, and it ties directly into the strategic tax planning side of what we do for Bristol business owners.
What Dividends Are Not
It is also worth being clear about what dividends are not.
- They are not simply company money you can draw whenever cash is sitting in the account
- Dividends can only be paid from genuine post tax distributable profit
- A company that is running at a loss or is insolvent cannot legally declare them at all, regardless of how the bank balance looks on a given day
A Note for Directors Outside England
If you are based in Scotland, your higher rate band starts at £43,663 rather than £50,270, meaning the point at which dividend extraction becomes less attractive arrives sooner. Dividend tax rates themselves are set at a UK wide level and do not differ by nation, only the income tax bands that determine where your income sits do. If you are a contractor, it is also worth understanding how IR35 works in the UK , as employment-status rules can affect how you are taxed.
Reporting Dividends to HMRC
When you need to report
If your dividend income exceeds both your unused Personal Allowance and the £500 Dividend Allowance, you need to report it through Self Assessment.
- Dividends do not go through payroll, so nothing is deducted automatically the way it would be from a salary
- The filing and payment deadline for dividends received in the 2026/27 tax year is 31 January 2028
A mistake worth avoiding
One common mistake is treating dividends as if they were salary when recording them in company accounts. HMRC can reclassify dividends taken without sufficient distributable profits as a director's loan or an unlawful distribution, which brings its own tax consequences on top of whatever was originally owed.
How Henleaze Can Help Bristol Directors Plan Ahead
We are based at Park House on Park Street in Bristol and a large part of our work involves helping local company directors get their salary and dividend structure right for the year ahead rather than reacting after the fact.For contractors running their own limited companies, our guide to contractor accounting services explains the wider accounting support available, from accounts and tax returns to ongoing financial management. We work on fixed fees with clear advice from the outset, so you know what a review will cost before we start, and we look at your specific profit level and circumstances rather than applying a generic formula that might not actually suit your business.
If you are still working out the basics of what tax planning involves more broadly, our guide on what tax planning actually is is a useful starting point and our overview of tax planning services covers the wider areas we support beyond dividends specifically.
Frequently Asked Questions
Final Words
The rise in dividend tax rates for 2026/27 is a real cost, not a minor technical adjustment and it changes the maths behind decisions that many directors have been making the same way for years without reviewing them. Whether the traditional salary and dividend split still works for you depends entirely on your own numbers.
If you would like a proper review of your salary and dividend structure for this tax year, get in touch with our team for a tailored quote based on your circumstances.
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