What is the UK dividend allowance for 2026/27?

Under UK tax law, if you own a UK company, you need a strategy for dividend income. While paying yourself via dividends can be an efficient way to take income, the tax regime can feel like a maze. This guide is based on official government figures and advice.

We’ll explain dividend tax thresholds and reporting requirements. We’ll also show you how much you can receive tax-free, how to calculate exactly what you owe for 2026/27, and the practical strategies you can use to lower your dividend tax bill.

What are dividends, and how are they taxed?

A dividend is a payment your company can make to its shareholders if it makes a profit. It can be an effective way to distribute profits, as dividends are not subject to National Insurance Contributions (NICs), unlike salaries.

Your company does not need to pay tax on dividend payments, but it does have to pay Corporation Tax on the profits before it distributes them. In addition, you may have to pay tax on the dividends you receive if they exceed the dividend allowance.

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We recommend consulting your accountant or reviewing HMRC dividend guidance to ensure you make the most tax-efficient decisions for your circumstances.

What is the dividend tax allowance for 2026/27?

In 2026/27, the amount you can earn in dividends before you pay tax on them is £500. Once your dividend income exceeds this allowance, it becomes taxable.

How much can I earn in dividends without paying tax?

If your only income is from dividends, you can also use your tax-free personal allowance (PA). So, in addition to the £500 allowance, you could earn another £12,570 (the standard PA for 2026/27) tax free. It’s essential to use these allowances to avoid paying unnecessary tax on your profits.

Changes to the dividend allowance

The government has gradually reduced the dividend allowance through the annual Autumn Statement and subsequent guidance over the last decade. The dividend allowance in the UK stood at £5,000 in 2017, then decreased to:

• £2000 from April 2018
• £1,000 from April 2023
• £500 from April 2024

The government stated that the falling allowance aligns with its goal of putting the public finances on a fair and sustainable path, with everyone contributing a little and those on the highest incomes taking on a larger burden.

The dividend tax rates of 10.75% (basic rate) and 35.75% (higher rate) took effect on 6 April 2026 (previously 8.75% and 33.75%, respectively). The additional rate of 39.35% has been in effect since April 2022.

How much dividend tax will I pay?

The amount of tax you pay above the dividend allowance depends on your Income Tax band. To identify your band, add your total dividend payments to your other income, such as salary. The dividend income you earn above the £500 allowance slots into the highest portion of your tax band, known as the top slice, above other income such as salary.

For example:

• Salary income that falls within the ‘basic rate’ Income Tax band (up to £50,270) is taxed at 20%, but any dividends earned on top of that are taxed at 10.75%.
• Salary income that falls into the ‘higher rate’ Income Tax band (£50,271 to £125,140) is taxed at 40%, but any the dividends you earn on top of that are taxed at 35.75%.

You can check how much you owe on dividends by using the government’s official dividend tax calculator.

Income Tax bands and dividend rates 2026/27 (England, Wales and Northern Ireland)

Band	Taxable income	Tax rate (non-dividend income)	Dividend tax rate (above £500 allowance)
Personal allowance	Up to £12,570*	0%	0%**
Basic	£12,571 to £50,270	20%	10.75%
Higher	£50,271 to £125,140	40%	35.75%
Additional	Over £125,140	45%	39.35%

In Scotland, dividend tax bands are the same as those in the rest of the UK, but income tax bands differ. The breakdown looks like this.

Scottish Income Tax and dividend rate breakdown 2026/27

Band	Taxable income	Tax rate	Dividend tax rate
Personal allowance	Up to £12,570*	0%	0%**
Starter	£12,571 to £16,537	19%	10.75%
Basic	£16,538 to £29,526	20%	10.75%
Intermediate	£29,527 to £43,662	21%	10.75%
Higher	£43,663 to £50,270	42%	10.75%
Higher	£50,271 to £75,000	42%	35.75%
Advanced	£75,001 to £125,140	45%	35.75%
Top	Over £125,140	48%	39.35%

* The standard PA is the amount of income an individual can earn tax-free in a year. However, if you earn more than £100,000, your PA will reduce by £1 for every £2 of adjusted net income above £100,000. This means your PA will be zero if your income is £125,140 or more.

** If dividend payments are your only income, you won’t pay any tax on them until they exceed £13,070 in a tax year, which is the PA and dividend allowance combined.

Case studies: How it works in practice

Here are some examples of how much tax you might pay.

Example 1: Dividends under allowance

In your first year of trading, you receive £9,000 in dividends, your only income for the year.

• The first £500 of your dividend income is covered by the dividend allowance, so it’s tax free.
• The remaining £8,500 falls within your PA of £12,570, which applies to all types of income, including dividends.

Because your total income doesn’t exceed the combined figure of £13,070, you won’t owe any tax.

Example 2: Paying the basic rate

You receive a £25,000 dividend, which is your only income for the year.

• The first £500 is tax free.
• The next £12,570 is shielded by your PA.
• That leaves £11,930, which is taxable income.

Since your total income falls within the basic rate band (£12,571 to £50,270), the taxable portion is charged at 10.75%, the basic dividend tax rate. That equals £1,282, so the income you can take home for the year is £23,718.

Example 3: Paying the higher rate

In the tax year, you’ve paid yourself a £40,000 salary and £15,000 in dividends. That makes your total income £55,000, placing you in the higher-rate tax bracket (£50,271 to £125,140).

• The first £500 of your dividend income is tax free. Your personal allowance of £12,570 covers part of your salary, leaving a taxable salary of £27,430.
• You’ll pay 20% Income Tax and 8% NICs on that £27,430, equalling £5,486 Income Tax and £2,194 NICs.
• After using your allowances, £9,770 of your dividend income falls within the basic rate band and is taxed at 10.75% (£1,050). The remaining £4,730 of dividend income crosses into the higher rate band and is taxed at 35.75% (£1,691).

So, your total tax deductions are £5,486 + £2,194 + £1,050 + £1,691, equalling £10,421. Take that away from £55,000 and your take-home income for the year is £44,579.

Example 4: An intermediate rate payer in Scotland

You’re a business owner in Scotland and for 2026/27 you receive a £40,000 salary and £15,000 in dividends. That brings your total income to £55,000.

• Your salary places you in the Scottish Income Tax intermediate band. But your total income puts you in the UK higher-rate band for dividend tax (£50,271–£125,140).
• Your PA covers the first £12,570 of your salary. The remaining £27,430 is taxed across three Scottish bands:
  • Starter rate (19%) on £3,966 (£12,571–£16,537) = £754
  • Basic rate (20%) on £12,988 (£16,538 to £29,526) = £2,598
  • Intermediate rate (21%) on £10,473 (£29,527 to £40,000) = £2,199
• You pay 8% NICs on salary above £12,570, in the 2026/27 tax year, which equals £2,194.
• The first £500 of dividend income is still tax free.
• The next £9,770 falls within the basic rate band and is taxed at 10.75% (£1,050).
• The remaining £4,730 is taxed at the higher dividend rate of 35.75% (£1,691).
• Your total tax to pay is £754 + £2,598 + £2,199 + £2,194 + £1,050 + £1,691 = £10,486.

So, your take-home income is £55,000 − £10,486 = £44,514.

How to reduce your dividend tax bill legally

Here are some ways to minimise the tax you pay on both dividends and salary. Your accountant can advise you on these while ensuring you’re always within the law.

1. Optimise your allowances each year

Strategically planning dividends and salary payments around the tax year can help maximise your personal and dividend allowances. Consider paying yourself a salary up to the personal allowance, then dividends up to the £500 allowance to optimise tax exposure.

2. Issue shares to your spouse or partner

Can you split dividends with your spouse? The answer is yes. If your spouse or civil partner has unused PA or is in a lower tax bracket than you, you can legally make them a shareholder in your company and pay them dividends. This could reduce your tax liability while maintaining your joint income.

3. Make pension contributions

Pension contributions can lower your dividend tax. Since pension contributions qualify for tax relief, setting up a pension or making additional payments into an existing one could take you into a lower tax band, therefore reducing the dividend income you pay.

4. Investing through ISAs

Dividends from shares held in stocks and shares individual savings accounts (ISAs) are tax free, making them an efficient way to receive dividend income. In 2026/27, you can save up to £20,000 tax free in ISAs. However, you are not allowed to hold your own private limited company’s shares in an ISA, so this only applies to other types of shares you may hold.

Do I need to report my dividends to HMRC?

If you receive dividend payments under your unused PA and dividend allowance, you don’t need to report these to HMRC. If your dividend income is over these allowances, you have to pay tax on it, and you must tell the tax authority.

Report dividend income up to £10,000

If you send a Self Assessment tax return (Form SA100), report any dividend income on it and submit it by the deadline. If you don’t send a Self Assessment tax return, let HMRC know after the end of the tax year (5 April) and before 5 October. Either ask HMRC to update your tax code  – the tax will be taken from your wages or pension – or contact its helpline.

Report dividend income over £10,000

Fill in a tax return. If you do not usually send a tax return, you need to register for Self Assessment by 5 October after the end of the tax year (5 April) in which you received the income.

Structure your company for tax efficiency

The dividend allowance may be shrinking, but you still have the power to protect your profits by using every available tax relief. From spousal shares to pension contributions, you can legally maximise your income.

Want to structure your company more tax efficiently for 2026/27? Discover how 1st Formations can assist you with everything from company registration to services and support for staying compliant.