The rates
| Your income falls in the | 2025/26 | 2026/27 |
|---|---|---|
| Basic rate band (ordinary rate) | 8.75% | 10.75% |
| Higher rate band (upper rate) | 33.75% | 35.75% |
| Over £125,140 (additional rate) | 39.35% | 39.35% |
The new ordinary and upper rates were set by section 4 of Finance Act 2026. The additional rate didn’t change. The bands are the same as for other income: the basic rate band is the first £37,700 of taxable income, and the additional rate applies above £125,140.
The £500 dividend allowance
The first £500 of dividends each year is taxed at 0%. It is a nil rate, not an exemption, so those £500 still count as income and still use up £500 of your band. If your salary leaves only a little room in the basic rate band, the allowance can use that room and push later dividends into the upper rate.
Dividends from shares held in an ISA are tax-free and don’t count at all.
How dividends sit on top of other income
Income tax takes your income in a set order: salary, pensions, rent and self-employed profit first, then savings interest, then dividends. So dividends are always the top slice, taxed at the rates of whichever bands they reach after everything else is counted.
The personal allowance goes against your salary and other income first. If any is left, it covers savings or dividends, in whichever way leaves the least tax, as the law requires (Income Tax Act 2007, section 25).
A worked example
This is GOV.UK’s own example, using 2026/27 rates. You get £29,570 in wages and £3,000 in dividends.
- Your £12,570 personal allowance covers the first £12,570 of wages. The other £17,000 is taxed at 20%: £3,400.
- The first £500 of dividends is covered by the dividend allowance.
- The remaining £2,500 is in the basic rate band, taxed at 10.75%: £268.75.
The total income tax is £3,668.75. In 2025/26 the dividend tax would have been £218.75, at 8.75%.
The personal allowance
The £12,570 personal allowance falls by £1 for every £2 of income over £100,000, and is gone at £125,140. Dividends count towards that income. So between £100,000 and £125,140 each extra £1 of dividends also costs you 50p of allowance, and the effective rate in that zone is much higher than the headline rate.
Paying the tax
If your dividends are £500 or less, there’s nothing to pay. Between £500 and £10,000, you can ask HMRC to collect the tax through your tax code, or report it on a Self Assessment return. Over £10,000 of dividends, you must file a Self Assessment return, by 31 January after the end of the tax year, and the tax is due on the same date. Larger bills can also bring payments on account for the following year.
Directors deciding how to pay themselves should look at salary or dividends. Scottish taxpayers use these same dividend rates; see how dividends are taxed in Scotland.