Most people can receive a little dividend income each year without paying any tax on it. Whether you owe anything depends on three things: how much you receive, where the shares are held, and your total other income. This guide explains the rules for the 2026/27 tax year (6 April 2026 to 5 April 2027) with a few worked examples.
The quick answer
Dividends get their own tax treatment, separate from the tax on your salary, and usually at lower rates. But they aren't taxed in isolation. Your salary, pension and other income are counted first, and your dividends are stacked on top. Their position in that order sets the rate.
For 2026/27, the first £500 of dividend income is covered by the dividend allowance and taxed at 0%. Anything above that is taxed at 10.75%, 35.75% or 39.35%, depending on the band it falls into. And if the shares sit inside an ISA, the dividends are tax-free and never enter the calculation at all.
If you'd like to see a calculation of a specific scenario, use our dividend tax calculator.
- 1The first £500 of dividend income is taxed at 0% under the dividend allowance, but it still takes up space in your tax bands.
- 2Dividends from shares or funds held inside an ISA or pension are tax-free and don't need to be reported.
- 3Your salary and other income are counted before dividends, so identical dividends can produce very different tax bills.
What is dividend income?
A dividend is your share of a company's profits, paid out to you because you own shares in it. You might receive dividends from listed company shares, investment funds, investment trusts, or from your own limited company if you're a shareholder-director.
It helps to know what isn't a dividend, because each type of income has its own rules. Savings interest, salary and rental profit are all taxed separately. So are capital gains, which arise when you sell an investment for more than you paid. And a director's loan isn't a dividend either. If you are a director/shareholder of a company and you draw out more money than there are cumulative profits available, then not all of those drawings can be classified as dividends. Some may be treated as a director's loan so always check with your accountant to confirm the correct figure.
If you recieve dividends through funds or investment platforms, the amount for the tax year is usually shown on an annual tax statement.
Foreign dividends follow the same principle but can have additional complications, such as tax already deducted abroad and exchange rates. If you receive them, check the GOV.UK guidance on foreign income or take advice — this guide only covers UK dividends.
This is a guide to personal dividend tax. It doesn't cover corporation tax, the company law rules on declaring a dividend, or how investment income is taxed inside a company.
The dividend allowance and personal allowance
Two separate allowances can keep a dividend out of tax.
Your Personal Allowance. This is the income you can have each year before any Income Tax is due which is £12,570 for 2026/27. If your salary and other income don't use up the full allowance, the leftover part can be used for dividends before the dividend allowance is needed.
The dividend allowance. On top of that, the first £500 of dividend income is taxed at 0%. It's separate from the Personal Allowance and applies in addition to it.
A common misunderstanding is that the dividend allowance is not a deduction from your income. It taxes the first £500 of dividends at 0%, but those dividends still sit inside your tax bands. Near a band boundary that matters, because the tax-free slice can use up part of the basic-rate band even though no tax is charged on it.
The allowance is annual and applies to your total dividends for the year, not to each holding. If you receive £300 from one fund and £400 from another in a general account, you have £700 of dividend income to consider, £200 of which could be taxable after the allowance.
Dividend tax rates 2026/27
The rate you pay is tied to the Income Tax band your dividends fall into — but the dividend rates themselves are lower than the rates on salary. The ordinary and upper rates each rose by 2 percentage points from 6 April 2026, while the additional rate remained the same.
| Tax year | Basic rate | Higher rate | Additional rate |
|---|---|---|---|
| 2024/25 | 8.75% | 33.75% | 39.35% |
| 2025/26 | 8.75% | 33.75% | 39.35% |
| 2026/27 | 10.75% | 35.75% | 39.35% |
To find your band, add your dividend income to the rest of your income. Dividends can straddle more than one band, so part might be taxed at the basic rate and part at the higher rate.
For context, the standard Personal Allowance is £12,570. In England, Wales and Northern Ireland the basic rate band then runs up to £50,270 of total income, higher rate tax starts above that, and the additional rate threshold is £125,140.
Scotland. Dividend rates are UK-wide. Scotland sets its own bands for earned income like wages and pensions, but your dividends still use the UK dividend rates above. Wherever you live, the approach is the same: work out your other income first, then drop the dividends on top.
Worked examples of dividend tax
A few short scenarios show how this works in practice. They all use the 2026/27 rates, the standard £12,570 Personal Allowance and the £500 dividend allowance, and they assume England, Wales or Northern Ireland bands, with no savings income, pension relief or Personal Allowance taper.
| Scenario | Other income | Dividends | How they're taxed | Dividend tax |
|---|---|---|---|---|
| Dividends inside an ISA | Any | £6,000 in a stocks and shares ISA | Tax-free wrapper, outside the dividend rules | £0 |
| Small dividends below the allowance | £30,000 salary | £400 in a general account | Fully covered by the £500 dividend allowance | £0 |
| Basic-rate taxpayer above the allowance | £35,000 salary | £4,000 in a general account | £500 at 0%, £3,500 at 10.75% | £376 |
| Higher-income investor | £60,000 salary | £10,000 in a general account | £500 at 0%, £9,500 at 35.75% | £3,396 |
| Company director on a low salary | £12,570 salary | £40,000 dividends | £500 at 0%, £37,200 at 10.75%, £2,300 at 35.75% | £4,821 |
The director example shows the stacking effect at its clearest. A £12,570 salary uses up the whole Personal Allowance, so all £40,000 of dividends sits on top of it. The £500 allowance is charged at 0% but still occupies band space. Of the rest, £37,200 fills out the basic-rate band at 10.75%, and the final £2,300 spills over into the higher-rate band at 35.75%.
Dividends from ISAs, pensions and funds
For many people, where the investment is held matters more than the dividend itself.
| Where the dividend comes from | Tax treatment | What to do |
|---|---|---|
| General investment accountShares, funds or investment trusts held outside a tax wrapper. | Potentially taxable after allowances | Include the dividends when you check your tax position |
| Your own limited companyDividends paid to you as a shareholder. | Potentially taxable after allowances | Keep dividend vouchers and include taxable dividends where required |
| Stocks and shares ISADividends from investments held inside an ISA. | Tax-free | Leave them out of your dividend tax sum |
| Pension investmentsDividends earned inside a pension or SIPP. | Tax-free while inside the pension | Leave them out of your dividend tax sum |
Funds add one extra step. A fund distribution can count as a dividend or as interest, depending on what the fund mainly invests in. Equity funds usually pay dividend distributions, while bond and cash funds usually pay interest distributions — which follow the savings rules instead. Your annual tax statement should tell you which type you received.
How to report dividend income to HMRC
HMRC doesn't take dividend tax automatically when a dividend is paid, so what you need to do depends on how much you received and whether there's any tax to pay.
If your dividends are within the dividend allowance for the year, or they come from investments held inside an ISA, you don't need to tell HMRC about them at all.
If you have tax to pay and your dividend income is up to £10,000, GOV.UK says you can put it on your Self Assessment tax return if you already file one. If you don't, you can instead ask HMRC to change your tax code so the tax comes out of your wages or pension, or call the helpline. Either way, you need to tell HMRC after the tax year ends on 5 April and before 5 October.
If your dividend income is over £10,000, you'll need to complete a Self Assessment tax return. If you don't already file one, you must tell HMRC you need to register by 5 October after the end of the tax year in which you received the dividends.
Keep a record of the dividends paid, the dates, and the company or fund that paid them. Limited company owners should also hold on to board minutes and dividend vouchers. Downloadable annual tax statements are useful for investment account tax summaries. The Self Assessment tax calculator can help you estimate the overall bill once dividends are added to the rest of your income.