Director Dividend Tax 2026/27: Rates, Allowance and How It Works

The dividend allowance is £500. Dividends above it are taxed at 10.75% within the basic-rate band, 35.75% within the higher-rate band and 39.35% above £125,140. The two lower rates each increased by two percentage points from 6 April 2026; the additional rate was unchanged.

The allowance is a nil-rate band, not an exemption: dividends within it still use up the basic or higher-rate band.

Figures reflect the 2026/27 UK tax year (6 April 2026 to 5 April 2027) for England, Wales and Northern Ireland at the content update date. Scottish income tax bands differ for salary but not for dividends. Check GOV.UK, or ask us, before relying on them.

Income is taxed in the order: non-savings income such as salary, then savings, then dividends. Dividends therefore use whatever personal allowance and basic-rate band remain after salary. A director with a £12,570 salary has the full £37,700 basic-rate band available for dividends; one earning £50,000 elsewhere pays 35.75% on almost all dividends above the allowance.

Illustration only: salary £12,570 and dividends £20,000. The first £500 is in the allowance; £19,500 at 10.75% gives £2,096.25.

Illustration only: salary £12,570 and dividends £60,000. £500 allowance; £37,200 at 10.75% (£3,999); £22,300 at 35.75% (£7,972.25). Total dividend tax £11,971.25.

Dividends above the allowance are reported on Self Assessment. Tax is due by 31 January after the tax year ends, and if your Self Assessment bill exceeds £1,000 and less than 80% is collected at source, payments on account usually apply for the following year, due 31 January and 31 July. A first year with significant dividends can therefore require 150% of the liability on one date.

Below £10,000 of dividends, HMRC may allow you to ask for a tax code change instead, but directors usually file Self Assessment anyway.

Each dividend needs available distributable profits, a board decision or shareholder resolution, and a dividend voucher. Dividends must follow shareholdings and share-class rights. Without proper documentation, HMRC may argue that payments were salary or a director's loan.