Dividend tax explained, with a worked example
Ta treść jest po angielsku.
Dividends are payments a company makes to its shareholders out of profits. They are taxed differently from wages, and the rates depend on how much other income you have. For the 2026/27 tax year (6 April 2026 to 5 April 2027), there is a £500 allowance, and dividends above it are taxed at rates that start at 10.75 per cent. This guide explains how dividend tax is worked out, shows how dividends sit on top of wages and works through a complete example. Figures checked against GOV.UK on 15 October 2026.
What the dividend allowance does
Each tax year, the first £500 of dividend income is exempt from income tax. Dividends above the allowance are taxed at rates that depend on your income tax band. The allowance applies to total dividends from all sources, not to each company separately, and it is used before any tax is charged.
The allowance is not the same as the personal allowance on wages. The personal allowance can also be set against dividends if you have little other income, so your total income matters, not just the dividend figure.
- Allowance: £500 of dividends a tax year.
- It applies to total dividends from all companies.
- It is separate from the personal allowance on wages.
The dividend rates for 2026/27
For 6 April 2026 to 5 April 2027, dividends are taxed at 10.75 per cent in the basic rate band, 35.75 per cent in the higher rate band and 39.35 per cent in the additional rate band. These are the dividend rates, and each one is lower than the wage rate for the same band. They apply to the tax year from 6 April 2026 to 5 April 2027, so check the rates again for later years.
The rate for each part of your dividend is decided by where it falls in your income. Dividends are added on top of other income, so your wages fill the lower bands first, and the dividends fall into the bands above them.
- Basic rate: 10.75%.
- Higher rate: 35.75%.
- Additional rate: 39.35%.
- Dividends sit on top of other income.
Worked example from GOV.UK
Take a person who receives £3,000 of dividends and £29,570 of wages. The personal allowance is £12,570, so the taxable wages are £17,000 (£29,570 minus £12,570). Total taxable income, including dividends, is £20,000, which is all in the basic rate band.
Tax on wages is 20 per cent of £17,000, which is £3,400. Of the dividends, £500 falls within the allowance and is taxed at 0 per cent. The remaining £2,500 is taxed at 10.75 per cent, which is £268.75. Total tax is £3,668.75.
- Wages: £17,000 at 20%, which is £3,400.
- Dividends: £500 at 0%.
- Dividends: £2,500 at 10.75%, which is £268.75.
- Total: £3,668.75.
Why the order matters
Because dividends sit on top of wages, the bands are filled by wages first. If your wages already take you into the higher rate band, the dividends are taxed at 35.75 per cent rather than 10.75 per cent. This is why a salary and dividend mix needs checking each year, especially when your income is close to a band boundary.
Planning can make a real difference. Paying dividends in a year when wages are lower may keep more of them in the basic rate band, but the right approach depends on your whole situation, so test the figures before deciding.
A simple check is to add your wages and dividends together, subtract the personal allowance, and see which bands the remaining income falls into. Each band rate applies only to the dividends that sit inside that band, so the calculation is done slice by slice rather than at a single rate.
- Wages fill the lower bands first.
- Dividends near a band boundary can move up a rate.
- Test the figures before changing the mix.
Using the dividend tax calculator
The dividend tax calculator on Valtrinity lets you enter your wages and dividends, then applies the allowance and the rates for each band. Use it to check how a change in dividends affects your tax bill, and compare it with your own payslip and company records.
- Enter wages and dividends.
- Check the effect of a change before paying dividends.
Sources
Figures for the 2026/27 tax year, checked against the GOV.UK page below on 15 October 2026.
- GOV.UK, Tax on dividends: https://www.gov.uk/tax-on-dividends
Narzędzia wspomniane w poradniku
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Najczęstsze pytania
Is the £500 dividend allowance per company?
No. The allowance applies to your total dividends from all sources in the tax year, so it is shared across every company that pays you.
Do I need to report dividends on a tax return?
Dividends above the allowance usually need to be reported, and the rules can depend on your circumstances. Check the GOV.UK guidance for the position that applies to you.
Why are my dividends taxed at a higher rate than I expected?
Dividends are added on top of your wages, so a salary that already takes you into the higher rate band will push dividends up to 35.75 per cent. Check your total income for the year.
Are dividends taxed the same way as interest?
No. Interest and dividends are taxed under different rules and at different rates, so do not assume one applies to the other. Savings income has its own allowances and rules.