How dividend tax works

Dividend tax is charged on dividend income from UK and most foreign companies and funds. The key rule: dividends are taxed on top of all your other income — your salary, pension and savings income first, then your dividends. The dividend tax rate you pay depends on which income tax band your dividends land in.

Every taxpayer also gets a £500 dividend allowance for 2026/27. The first £500 of dividend income in the tax year is tax-free — this is an allowance on top of your Personal Allowance, not a separate band. Once dividends exceed £500, the excess is taxed at your dividend rate.

2026/27 dividend tax rates

Rates rose for 2026/27 (announced in the Autumn Budget 2025). The £500 allowance and the additional rate are unchanged; basic and higher rates both increased:

Income tax band2025/26 rate2026/27 rate
Basic rate8.75%10.75%
Higher rate33.75%35.75%
Additional rate39.35%39.35%

These rates apply to dividend income above the £500 allowance, and are set by your income tax band, not your dividend band. GOV.UK — Income Tax rates and allowances · 2026/27

Worked examples

All examples use your taxable income (income after your Personal Allowance) to place you in a band. The dividend tax is then calculated on the dividends that exceed the £500 allowance:

Your other taxable incomeDividend incomeTax bandDividend tax due
£0£2,000Basic£161.25
£30,000£8,000Basic£806.25
£50,000£5,000Higher£1,608.75
£130,000£5,000Additional£1,770.75

Check the first row: £2,000 of dividends with no other income — the £500 allowance is tax-free, and the remaining £1,500 is taxed at 10.75% (£161.25). In the higher-rate row, all £5,000 of dividends sit above the basic-rate band once added to your £50,000 income, so the £4,500 above the allowance is taxed at 35.75%.

Why dividend tax rates went up

Dividend tax rates were raised for 2026/27 as part of the government's Autumn Budget 2025 — the basic rate rose from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. The £500 allowance introduced in 2024/25 stays in place. This makes tax-efficient wrappers such as ISAs more valuable for dividend-paying investments.

Dividends inside an ISA are tax-free

Dividends on shares and funds held inside an ISA pay no dividend tax at all — the £500 allowance does not apply inside an ISA because the wrapper itself is tax-free. For anyone holding dividend-paying investments outside a pension, an ISA is usually the most tax-efficient home for them.

Frequently asked questions

Do I need to report dividends to HMRC?
If your total dividend income is within the £500 allowance and your total taxable income is within the basic-rate band, you may not need to file a tax return. If you exceed the allowance or are a higher-rate taxpayer, report dividend income in a Self Assessment tax return or via HMRC's online service.
Is dividend tax different in Scotland?
No. Dividend tax is a UK-wide tax set by the UK government. Scottish taxpayers pay Scottish income tax rates on earnings, but dividends follow the UK dividend tax rates (10.75% / 35.75% / 39.35% for 2026/27) based on your UK income band.
Does the dividend allowance apply inside an ISA?
No. Dividends inside an ISA are tax-free in full — the wrapper shelters them, so the £500 dividend allowance is not needed. The allowance only matters for dividends held outside an ISA or pension.
Are dividends taxed differently from interest?
Yes. Savings interest uses the Personal Savings Allowance (£1,000 for basic-rate taxpayers) and is taxed at your income tax rate. Dividends have their own £500 allowance and their own dividend tax rates, which are generally lower than income tax rates.

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Educational tools only — not financial advice. Rates and allowances for the 2026/27 tax year, shown as at September 2026. Rules can change — always verify against the latest official guidance.