Dividend Tax Rates for 2025/26: A Complete Guide

Dividends taxation in the UK can often feel complex and confusing, especially for investors and company directors trying to optimise their income while staying compliant. Navigating the nuances of dividend tax free allowance, changing HMRC dividend tax rates and understanding how to calculate tax on dividends in the UK poses a frequent pain point for many. For the 2025/26 tax year, the dividend allowance is £500 and the basic and higher rate dividend tax rates are 8.75% and 33.75% respectively. With dividend tax rates increasing from April 2026, planning ahead is more critical than ever. For the 2026/27 tax year, dividend allowance remains at £500, but tax rates will rise by 2 percentage points for basic and higher rate taxpayers.

Dividends are payments companies make to their shareholders, usually from the profits earned after paying Corporation Tax. They represent a return on investment and can be paid in cash or additional shares depending on the company’s policy. For directors of limited companies, dividends provide a tax-efficient way to draw income alongside a modest salary. Understanding dividends taxation in the UK is key to effective financial planning.

Understanding how dividends are taxed in the UK is key to planning your finances effectively. In this guide, you’ll learn everything about dividend taxation UK for the 2026/27 tax year and beyond, including:

• What are Dividends & how do they work?
• A Guide on How does a Company issue a Dividend
• The updated UK dividends allowance for 2025/26
• HMRC dividend tax rates for 2025/26
• The latest UK dividends allowance and who qualifies for it
• Current HMRC dividend tax rates based on income bands
• A step-by-step guide to calculate tax on dividends in the UK
• When and how to pay dividend tax to HMRC
• Proven tax-saving strategies such as ISAs, pension contributions and spousal transfers
• Limited company tax on dividends rules for directors of UK limited companies
• Planning strategies to minimise impact of 2026/27 rate increases

What are Dividends and how do they work?

Dividends represent payments made by a company to its shareholders as a distribution of a portion of the company’s profits, after corporate tax dividend obligations have been met. These payments reward shareholders for their investment and can take different forms:

• Typically paid in cash
• Sometimes issued as additional shares of stock
• Approved by the company’s board of directors
• Paid on a regular schedule (e.g., quarterly) or as special one-time dividends

Key Dates in the Dividend Process

Understanding these dates is important for managing dividend income taxability:

• Declaration Date: The date the company announces the dividend and payment details
• Ex-Dividend Date: The cut-off date that determines eligibility, only shareholders who own shares before this date receive the dividend
• Record Date: The date the company records shareholders eligible to receive dividends
• Payment Date: When the dividend is actually paid to shareholders

Dividend Payments and Tax Implications

Dividend payments depend on:

• The number of shares owned
• The company’s profitability and financial strategy

Shareholders earn income from dividends without needing to sell shares. However, for effective financial planning, understanding dividends taxation in the UK is essential, which includes:

• The UK dividends allowance for 2025/26 and 2026/27 is £500 – unchanged for both years
• What dividends are taxable and the dividend tax free allowance
• HMRC dividend tax rates for 2025/26 (8.75% basic, 33.75% higher) and 2026/27 (10.75% basic, 35.75% higher)
• How to calculate tax on dividends UK properly
• Dividend tax thresholds that determine how much tax applies
• For company directors, knowing ltd company tax on dividends and how to pay dividend tax is critical for compliance

Being informed about these elements ensures you manage dividend income efficiently, optimise tax liabilities and stay compliant with UK tax regulations related to dividends taxation UK.

How does your Company issue a Dividend?

A company issues a dividend through a structured process that ensures dividends are paid legally and in alignment with company profits and shareholder rights. Here are the main steps:

1. Profit Availability: The company must have sufficient distributable profits remaining after paying all taxes, expenses and liabilities. Only profits can be distributed as dividends, not capital.
2. Board Meeting and Declaration: The company directors hold a board meeting to officially declare the dividend amount. This is called declaring an interim dividend. For a final dividend, shareholders must usually approve it through an ordinary resolution either at a general meeting or in writing.
3. Calculate Dividend Payments: Dividends should be allocated to shareholders based on their ownership percentage, determined by the number and class of shares they hold as per the company’s articles of association.
4. Issue Dividend Vouchers: For each dividend payment, the company must issue a dividend voucher to the shareholder. This voucher includes company details, date of issue, shareholder’s name and address, shareclass, dividend amount and the signature of the authorised officer.
5. Record Keeping: Minutes of meetings where dividends are declared must be properly recorded and retained for legal compliance, usually for at least 10 years. The company must also record the dividend as a liability in its accounting records.
6. Payment: The dividend can be paid in cash (by bank transfer, cheque, or cash), or sometimes as shares or other assets.
7. Tax Reporting: After payment, the dividend income is subject to dividend tax rules and shareholders must report dividends received on their tax returns.

The whole process must comply with the company’s articles of association and applicable company law to ensure dividends are lawful and properly documented.

What is the Dividend Allowance for 2025/26?

The dividend allowance is the amount of dividend income you can receive before paying tax. For the 2025/26 tax year (6 April 2025 to 5 April 2026), the dividend allowance is £500. This means you can receive up to £500 in dividends without having to pay any tax this is your dividend tax-free allowance. Any dividends you receive over this amount will be subject to taxation based on your income tax band.

For the 2026/27 tax year (6 April 2026 to 5 April 2027), the dividend allowance will remain at £500, so there is no change to the tax-free threshold between these two years. This consistency helps with long-term planning.

Understanding the current UK dividends allowance for 2025/26 is important for tax planning. The allowance applies to individuals, regardless of whether you’re an investor or a company director drawing dividends from your limited company. Only amounts exceeding the £500 allowance are subject to tax.

It’s important to note that this dividend allowance applies to individuals. If you own a business and are paying yourself dividends, the tax rules may differ based on your company structure, which we’ll explain later when we cover how corporate tax affects dividend payments in UK limited companies.

Dividend Tax rates for 2025/26

For the 2025/26 tax year (6 April 2025 – 5 April 2026), the dividend allowance remains at £500, meaning the first £500 of dividend income is tax-free. Dividend tax rates for 2025/26 are as follows:

Region	Band	Taxable Income	2025/26 Dividend Tax Rate
England, Wales & Northern Ireland	Personal Allowance	Up to £12,570	0%*
	Basic	£12,571 to £50,270	8.75%
	Higher	£50,271 to £125,140	33.75%
	Additional	Over £125,140	39.35%
Scotland	Personal Allowance	Up to £12,570	0%*
	Starter	£12,571 to £15,397	8.75%
	Basic	£15,398 to £27,491	8.75%
	Intermediate	£27,492 to £43,662	8.75%
	Higher	£43,663 to £75,000	33.75%
	Advanced	£75,001 to £125,140	33.75%
	Top	Over £125,140	39.35%

Note: The 0% dividend tax rate applies only within the £500 annual dividend allowance and any unused portion of the personal allowance (£12,570). Dividend tax bands apply UK-wide, regardless of region.

Basic Rate taxpayers

If your total income, including dividends, falls within the basic rate band (between £12,571 and £50,270), the tax rate on your dividend income is 8.75% for 2025/26. For every £1,000 of dividend income above the £500 allowance, you pay £87.50 in tax. 

From April 2026 (2026/27), this rate will increase to 10.75%, meaning an additional £20 in tax per £1,000 of dividend income above the allowance.

Higher Rate taxpayers

If your total income exceeds £50,270 but is less than £125,140, you fall into the higher rate band. For dividends in this band, the tax rate is 33.75% for 2025/26. For every £1,000 of dividend income above the £500 allowance, you pay £337.50 in tax. 

From April 2026 (2026/27), this rate will increase to 35.75%, meaning an additional £20 in tax per £1,000 of dividend income above the allowance.

Additional Rate taxpayers

For those with income exceeding £125,140, the additional rate of taxation applies. The dividend tax rate for this group is 39.35% for both 2025/26 and 2026/27, unchanged from previous years. This represents the upper end of detailed UK tax rates on dividend income based on tax bands.

Example for the 2026/27 tax year:

If your total income is £130,000 including £10,000 from dividends in 2025/26, the first £500 of your dividends are tax-free under the dividend allowance. The remaining £9,500 will be taxed at 39.35%, resulting in a dividend tax liability of £3,738.25.

For a higher rate taxpayer earning £60,000 including £5,000 from dividends in 2025/26: the first £500 is tax-free, leaving £4,500 taxable. The tax will be £1,518.75 (£4,500 × 33.75%).

For basic rate taxpayers earning £40,000 including £3,000 from dividends in 2025/26: the first £500 is tax-free, leaving £2,500 taxable. The tax will be £218.75 (£2,500 × 8.75%).

For the 2026/27 tax year (starting April 2026), the basic rate will rise to 10.75% and the higher rate to 35.75%, so every £1,000 of dividend income above the £500 allowance will result in £20 more tax for basic and higher rate taxpayers.

For company directors, understanding how corporate tax dividend rules and ltd company tax on dividends align with these personal tax rates is integral to managing dividend payments properly. Knowing how to pay dividend tax, whether through Self-Assessment or tax code adjustments, is also vital for compliance.

When do you pay Tax on Dividends?

In dividends taxation in the UK, you are obliged to pay tax on your dividend income once it exceeds the annual UK dividends allowance, which remains at £500 for both 2025/26 and 2026/27. Understanding what dividends are taxable and which dividends are covered by this dividend tax-free allowance is essential for compliance with HMRC dividend tax rates.

Tax on dividends is typically paid in one of two ways:

• Through Self-Assessment: If your dividend income surpasses the £500 dividend allowance, you must report it in your Self-Assessment tax return. For the 2025/26 tax year, the tax payment is due by 31 January 2027 following the end of the tax year. This is the common method for calculating tax on dividends UK, especially if you receive dividends from multiple sources or have other taxable income. For the 2026/27 tax year, the deadline will be 31 January 2028.
• Via PAYE Code Adjustment: If your dividend income is modest and you do not need to file a tax return, HMRC may adjust your tax code to collect the dividend tax automatically from your salary or pension, based on the UK tax rates on dividend income.

Maintaining accurate records of all dividend income is crucial to ensure you stay compliant, properly understand which dividends are taxable and avoid late payment penalties when dealing with dividend tax thresholds. Proper planning helps in managing how to pay dividend tax efficiently and within statutory requirements.

How to calculate tax on Dividends?

Understanding how to calculate tax on dividends UK is essential for managing your dividend income taxability effectively. For basic, higher and additional rate taxpayers, the process involves four main steps:

Step 1: Calculate your total income

Determine your total income for the tax year, including:

• Salary or wages from your job or business
• Other income sources such as rental income or savings interest
• Dividend income from stocks, shares, or other investments (relevant to ltd company tax on dividends and corporate tax dividend considerations)

Step 2: Apply the Personal Allowance

For the 2025/26 tax year, the personal allowance is £12,570. This means you can earn up to this amount before paying any income tax. The personal allowance remains unchanged at £12,570 for 2025/26. If your total income is below this threshold, you won’t pay tax on your salary or dividend income (unless your income is solely from dividends, which are taxed separately after the £500 allowance).

Step 3: Apply the Dividend Allowance

The first £500 of your dividend income is tax-free for both 2025/26 and 2026/27, due to the dividend tax-free allowance with no change between the two years. Any dividend income you receive above this threshold will be taxed at the appropriate rate based on your income band. This is a critical component when you calculate tax on dividends UK.

Step 4: Apply the Dividend Tax Rates

Once you have deducted your personal and dividend allowances, the remaining dividend income is taxed at the rate corresponding to your income band. For basic rate taxpayers, the dividend tax rate is 8.75% for 2025/26 (it will increase to 10.75% for 2026/27). Higher rate taxpayers will pay 33.75% for 2025/26 (it will increase to 35.75% for 2026/27), while additional rate taxpayers will pay 39.35% (unchanged from 2025/26), reflecting the UK tax rates on dividend income.

For example, if you receive £1,500 in dividend income in the 2025/26 tax year, your calculation will look like this:

• Taxable dividend income: £1,500 – £500 = £1,000
• Dividend income: £1,500
• Dividend allowance: £500

For 2026/27, the same calculation would use the higher rates: 10.75% for basic rate and 35.75% for higher rate.

Mastering these steps helps you understand what dividends are taxable and how dividend tax thresholds affect your liability, ensuring compliance with UK tax rates on dividend income and facilitating proper dividend tax payments.

How to pay Dividend Tax?

When it comes to dividends taxation UK, understanding how to pay dividend tax correctly is vital to remain compliant with HMRC dividend tax rates and dividend tax thresholds. There are two primary ways to report and pay tax on your dividends in the UK:

1. Self-Assessment Tax Return

If your dividend income exceeds the UK dividends allowance (£500 for 2025/26), you are required to file a Self-Assessment tax return. This allows you to report all of your income, including dividends subject to dividend income taxability rules and pay any tax due by 31 January 2027 following the end of the tax year.

Registration for Self-Assessment can be done online through HMRC’s official website. This method is especially important for those with more complex income sources, such as multiple dividend payments from investments or dividends drawn from a limited company where ltd company tax on dividends applies. Most taxpayers use this method to calculate tax on dividends UK effectively. For the 2026/27 tax year, the deadline will be 31 January 2028.

2. Tax code adjustment

If your dividend income is below the Self-Assessment threshold but still exceeds the dividend tax-free allowance, you can contact HMRC to have your tax code adjusted. This adjustment allows HMRC to collect any dividend tax owed automatically from your salary or pension payments based on the applicable UK tax rates on dividend income.

Note: Following these methods ensures you stay compliant with UK dividends allowance regulations and correctly manage your corporate tax dividend obligations if you are a company director. Accurate reporting and prompt payment are critical to avoiding penalties related to dividend tax liability.

Tax-efficient strategies

To optimise dividends taxation UK and reduce your dividend income taxability, several tax-efficient strategies can help minimise your tax burden on dividend income:

1. Invest through Stocks and ISAs

Investing via Stocks and Shares ISAs allows you to earn dividends tax-free. Dividends paid within an ISA are exempt from HMRC dividend tax rates and not subject to the UK dividends allowance limits. With dividend tax rates rising in 2026/27 (10.75% basic, 35.75% higher), ISAs become an extremely attractive option for dividend investors. For every £1,000 of dividend income, using an ISA instead of direct holdings will save you £87.50 (basic rate) or £337.50 (higher rate) per year in 2025/26.

2. Pension Contributions

Contributing to a pension reduces your taxable income, potentially lowering your overall tax band and the dividend tax rate you pay. This will be significantly more beneficial from 2026/27 when rates increase, helping you remain within more favourable dividend tax thresholds. A £5,000 pension contribution could reduce your dividend tax bill by up to £337.50 in 2025/26 if it moves you from higher to basic rate.

3. Spousal Transfers

If your spouse or civil partner falls within a lower tax band, transferring dividend-paying assets to them can lower your joint dividend income tax liability. Their dividend income is taxed at a lower UK tax rate level, making it an effective method to manage dividend income. For 2026/27, the benefit of spousal transfers increases due to the higher rate differentials.

This combination of approaches provides practical ways to manage dividends taxation in the UK efficiently while complying with the UK dividends allowance and HMRC dividend tax rates. Given the 2026/27 rate increases, implementing these strategies before April 2026 is even more critical.

Corporate Tax & Dividends from UK Ltd Companies

For company directors and shareholders, understanding how corporate tax impacts dividend payments in UK limited companies and the specific UK Ltd company dividend tax rules is essential for compliance and tax planning.

• Dividends are paid from after-tax profits: When a limited company pays dividends, these are drawn from profits after corporation tax has been paid. For 2025/26, corporation tax rates are: 25% for companies with profits over £250,000 and 19% for companies with profits under £50,000. Companies with profits between £50,000 and £250,000 may qualify for marginal relief, resulting in an effective rate between 19% and 25%. This means profits are effectively taxed twice: once at the corporate level (at 19% or 25%) and again at the shareholder level. For example, a company earning £10,000 in profit and paying it as a dividend to a higher rate taxpayer will face a combined tax burden of 52.75% in 2025/26 (25% corporation tax + 33.75% dividend tax). For 2026/27, the dividend tax rate increases to 35.75% for higher rate taxpayers.
• Requirements for directors: As a director, it’s crucial to ensure the company has sufficient retained earnings before declaring dividends. Dividends must be formally declared through a board resolution, emphasising the importance of proper documentation and compliance.
• Tax obligations: The company must pay corporation tax on its profits before dividends can be distributed. Understanding the relationship between corporate tax and dividends underscores the need to accurately calculate available distributable profits and adhere to dividend tax thresholds.
• Implications for shareholders: Dividends paid to shareholders in 2025/26, including directors, are subject to the UK tax rates on dividend income after accounting for the £500 dividend allowance. Although profits are taxed twice, paying dividends remains a tax-efficient way for shareholders to extract value from the company. However, the higher rates from 2026/27 may prompt directors to reconsider their income extraction strategies, such as increasing pension contributions or salary optimisation, especially if they fall into the higher rate band.

Understanding these principles ensures compliance with UK tax laws while optimising dividend payments from limited companies, minimising the overall tax burden for directors and shareholders alike.

Conclusion

Dividends taxation in the UK for 2025/26 requires immediate planning. The £500 dividend allowance remains unchanged, but HMRC dividend tax rates are 8.75% for basic rate, 33.75% for higher rate and 39.35% for additional rate. For 2026/27, rates will rise to 10.75%, 35.75% and 39.35% respectively. Accurately calculating tax on dividends involves considering your total income and applying allowances.

Company directors must navigate limited company tax on dividends and corporate tax rules. The combined corporation and dividend tax burden will be higher for most taxpayers, making tax-efficient strategies essential.

Tax-efficient approaches, including Stocks and Shares ISAs (£20,000 annual allowance), pension contributions (up to £60,000 annually) and spousal asset transfers, can significantly reduce your dividend tax liability. Starting these strategies before April 2026 helps lock in lower rates and maximise after-tax dividend income.

By implementing these tax-efficient strategies, investors and company directors can optimise income, minimise tax burdens and stay compliant with HMRC regulations. Starting your tax planning now is critical.

For personalised advice or assistance with dividends taxation UK, contact us at [email protected] or call at 01923 856 008

Frequently Asked Questions (FAQs)