Dividend Tax Rates 2026/27: The New Rates Explained
At the Autumn Budget 2025 the government raised dividend tax by 2 percentage points from 6 April 2026. This is the biggest change to how UK company directors pay themselves since the £5,000 Secondary Threshold arrived in 2025.
Headline: +2 percentage points at basic and higher rate
Basic-rate dividend tax rose from 8.75% to 10.75% and higher-rate from 33.75% to 35.75%. The additional rate (39.35%) and the £500 dividend allowance are unchanged.
What changed on 6 April 2026
| Band | 2025/26 | 2026/27 |
|---|---|---|
| Basic rate (£12,571 – £50,270) | 8.75% | 10.75% |
| Higher rate (£50,271 – £125,140) | 33.75% | 35.75% |
| Additional rate (over £125,140) | 39.35% | 39.35% |
| Dividend allowance | £500 | £500 |
The Personal Allowance (£12,570) still applies to dividends if it hasn't been used up by salary, and both the allowance and the income tax thresholds are frozen until April 2031.
How dividend tax is calculated
Dividend tax is worked out on top of your other income, in this order:
- Salary first. Your salary uses up the Personal Allowance and the lower part of your basic-rate band.
- Any unused Personal Allowance covers dividends. Dividends falling inside your remaining Personal Allowance are tax-free.
- The £500 dividend allowance taxes the next slice of dividends at 0% — but it still uses up part of whichever band it falls in.
- The rest is taxed at the band rate — 10.75%, 35.75%, or 39.35%.
Worked examples for a director on the optimal £6,708 salary
1. £30,000 total income (£6,708 salary + £23,292 dividends)
- • £5,862 of dividends covered by remaining Personal Allowance — £0 tax
- • £500 dividend allowance — £0 tax
- • £16,930 taxed at 10.75% = £1,820
- Dividend tax bill: £1,820
Under the old 8.75% rate it was £1,481 — that's £339 more per year.
2. £50,000 total income (£6,708 salary + £43,292 dividends)
- • £5,862 covered by remaining Personal Allowance — £0
- • £500 dividend allowance — £0
- • £36,930 taxed at 10.75% = £3,970
- Dividend tax bill: £3,970
Old rate: £3,231 — £739 more per year.
3. £100,000 total income (£6,708 salary + £93,292 dividends)
- • £5,862 covered by Personal Allowance + £500 allowance — £0
- • £37,200 at 10.75% = £3,999
- • £49,730 at 35.75% = £17,778
- Dividend tax bill: £21,777
Old rates: £20,039 — £1,739 more per year.
Rule of thumb: the rise costs exactly 2% of every pound of taxed dividend income.
Does salary now beat dividends?
For most directors dividends still win at basic rate — 10.75% dividend tax is still cheaper than 20% Income Tax plus 8% employee NI on additional salary. But the gap has narrowed, and employer pension contributions became relatively more attractive as an extraction route.
For a full breakdown, see our Salary vs Dividends 2026/27 guide, or model your own numbers with the calculator on the homepage.
What directors should do now
- • Review your salary/dividend split for 2026/27 — the arithmetic has moved, even if the answer often hasn't.
- • Remember dividends need distributable profits and proper paperwork (board minutes and dividend vouchers).
- • Directors' loan accounts got more expensive too — the additional 2 percentage points also raised the Section 455 charge on new overdrawn directors' loans to 35.75%.