Part of our complete guide to salary & dividends.
What's changed for 2026/27
Dividend tax rates have risen again for the 2026/27 tax year. The basic rate band rose to 10.75% and the higher rate band to 35.75%. If you're a company director taking dividends as part of your income, this directly affects your take-home pay, even if the amount you draw from the company hasn't changed at all.
Verify before relying on this: rates for the additional-rate band have not been independently confirmed against gov.uk at the time of writing. Ask us to confirm your exact position before making decisions based on a specific figure.
The dividend allowance
The first £500 of dividend income in a tax year is tax-free, regardless of what tax band your other income falls into. Above that, dividends are taxed at the rate for whichever band your total income (salary plus dividends plus anything else) falls into.
Why this still beats salary for most directors
Even after several years of rate rises, dividends are still taxed at lower rates than salary once you account for National Insurance, which doesn't apply to dividends at all. This is why the salary/dividend split remains a cornerstone of director tax planning, see our guide on paying yourself tax-efficiently for the full picture, and our dividend tax calculator to run your own numbers against the current rates.
What to actually do about it
- Re-check your salary/dividend split every tax year, the optimal mix shifts slightly as rates and thresholds move, it isn't a decision you make once and forget
- Use your spouse's or civil partner's dividend allowance and lower tax bands if they're also a shareholder and in a lower band themselves
- Consider timing larger dividends around tax year boundaries if you're close to crossing into a higher band
Want this modelled against your actual numbers? Book a free consultation and we'll work out your most tax-efficient salary/dividend split for 2026/27, not a generic rule of thumb.
Frequently asked questions
What is the dividend allowance for 2026/27?
£500, the first £500 of dividend income is tax-free regardless of your other income. Anything above that is taxed at your dividend rate band.
What are the dividend tax rates for 2026/27?
The basic rate rose to 10.75% and the higher rate to 35.75% for 2026/27. Check the current additional rate directly with HMRC or with us before relying on a specific figure, as this has not been independently confirmed at time of writing.
Are dividend tax rates the same as income tax rates?
No, dividends are taxed at separate, generally lower rates than salary and other income, which is why the salary/dividend split remains a core part of director tax planning, even as dividend rates have risen in recent years.
Do I pay dividend tax through PAYE?
No, dividend tax is declared and paid through your self assessment tax return, it is not deducted at source the way salary is.