The numbers

• Dividend allowance: £500 a year, tax free
• Basic rate band: 10.75%
• Higher rate band: 35.75%
• Additional rate band: 39.35%

The basic and higher rates went up on 6 April 2026, from 8.75% and 33.75%. The additional rate did not move.

On top of the allowance, dividends that fall inside your unused Personal Allowance are tax free too. Someone whose only income is £13,000 of dividends pays nothing: £12,570 covered by the Personal Allowance, £430 by the allowance.

Which band you are in

Stack dividends on top of your other income. GOV.UK’s example: wages of £29,570 plus £3,000 of dividends gives total income of £32,570. Take off the £12,570 Personal Allowance and £20,000 is taxable, all inside the basic band. The tax is 20% on £17,000 of wages, nothing on the first £500 of dividends, and 10.75% on the remaining £2,500.

Push the same person £25,000 further into dividends and part of the dividend income crosses £50,270, so that part is taxed at 35.75%. The allowance does not shrink as income rises; only the Personal Allowance tapers, disappearing between £100,000 and £125,140.

What it costs in practice

A director taking a £12,570 salary and £40,000 of dividends in 2026/27 pays: nothing on the salary, nothing on the first £500 of dividends, and 10.75% on £37,200 of the rest, with the final £2,300 crossing into the higher band at 35.75%. Work it through: £3,999 plus £822.25 is £4,821.25 of dividend tax.

Telling HMRC

Dividend income above your unused Personal Allowance and the £500 allowance must be reported to HMRC. If you file a Self Assessment return, as most company directors do, that is where it goes. Dividends from shares held in an ISA never need reporting.

Sources

All pages checked 20 October 2026.

• Tax on dividends: https://www.gov.uk/tax-on-dividends
• Changes to tax rates for property, savings and dividend income (GOV.UK, 26 November 2025): https://www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-dividend-income/changes-to-tax-rates-for-property-savings-dividend-income
• Income Tax rates: https://www.gov.uk/income-tax-rates

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