· 3 min read
Dividend tax rose 2 points in April 2026: what it costs you
Dividend tax rates rose to 10.75% and 35.75% from 6 April 2026. Worked examples show the extra cost for company directors and investors at different levels.
From 6 April 2026, the two lower dividend tax rates went up by 2 percentage points. If you run your own limited company or hold shares outside an ISA or pension, your tax on dividends has risen this year.
The new rates
| Band | 2025/26 | 2026/27 |
|---|---|---|
| Dividend allowance | £500 | £500 |
| Ordinary rate (basic rate band) | 8.75% | 10.75% |
| Upper rate (higher rate band) | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
The additional rate on dividends above the £125,140 threshold did not change.
How dividend tax is worked out
Dividends sit on top of your other income. Your salary, pension income and rent use up your Personal Allowance and basic rate band first. Dividends then fill whatever is left.
The first £500 of dividends is tax-free, but it still uses up band space. Dividends that fall in the basic rate band are taxed at 10.75%, and those above £50,270 of total income at 35.75%.
Worked examples: company directors
A common setup for a director is a salary of £12,570, which uses the Personal Allowance, with the rest taken as dividends. Here is the dividend tax on top of that salary.
| Dividends | 2025/26 tax | 2026/27 tax | Increase |
|---|---|---|---|
| £5,000 | £393.75 | £483.75 | £90 |
| £20,000 | £1,706.25 | £2,096.25 | £390 |
| £50,000 | £7,406.25 | £8,396.25 | £990 |
The £50,000 case shows how the bands work. After the £500 allowance, £37,200 is taxed at 10.75% (£3,999.00) and the remaining £12,300, which sits above the basic rate band, at 35.75% (£4,397.25).
Corporation tax is paid by the company before any dividend, so the full cost of extracting profit is higher than these figures. That part did not change in April.
Worked example: an investor
Someone earning £60,000 from a job who receives £5,000 of dividends from shares held outside an ISA is already a higher rate taxpayer. Their dividend tax goes from £1,518.75 to £1,608.75, an increase of £90.
Who is not affected
- Shares held in an ISA or a pension. Dividends inside these wrappers are not taxed.
- Anyone whose dividends stay within the £500 allowance.
- Additional rate taxpayers, for the slice of dividends above £125,140.
Ways to reduce the bill
- Use your ISA allowance. Moving shares into an ISA (a "bed and ISA") shelters future dividends. The overall ISA limit stays at £20,000 a year.
- Use both partners' allowances. Transfers between spouses and civil partners are free of capital gains tax, so splitting holdings can use two £500 allowances and two basic rate bands.
- Pension contributions. For directors, employer pension contributions from the company are a deductible business cost and avoid dividend tax altogether.
- Review the salary and dividend split. With dividend tax higher, the balance between salary, dividends and pension is worth rechecking with your accountant.
Reporting dividend tax
If your dividends are £10,000 or less, HMRC can usually collect the tax through your tax code if you tell them. Above £10,000, you need to file a Self Assessment return.
What to do now
- Add up the dividends you expect this tax year from all companies and funds outside ISAs and pensions.
- Put them into our dividend tax calculator alongside your salary to see the tax and how much falls in each band.
- If you are a director, check whether a higher employer pension contribution would save more than another dividend.
- Set aside the tax as dividends arrive, especially if they push you into Self Assessment for the first time.