UK dividend tax 2026/27

How much tax do you pay on dividends in 2026/27?

Above a £500 tax-free allowance, UK dividends are taxed at one of three rates set by your income-tax band: 10.75% at the basic rate, 35.75% at the higher rate and 39.35% at the additional rate, for the tax year running from 6 April 2026 to 5 April 2027. The rate is decided by your total taxable income, not by the size of the dividend on its own.

These rates apply only to dividends above the allowance and above any unused personal allowance. They are flat rates within each band: a basic-rate taxpayer pays 10.75% on every taxable pound of dividend, not a sliding scale.

The dividend rates rose in April 2026 — most calculators still show the old ones

The basic dividend rate rose from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%, on 6 April 2026. The change was announced at the Autumn Budget 2025 and applies for 2026/27 onwards; the additional rate held at 39.35%. The stated aim was to narrow the gap between tax on earned income and tax on income from assets, which carries no National Insurance.

The practical effect is simple to size up: the rise adds 2p of tax for every £1 of dividend taxed at the basic or higher rate. Take an investor with a £45,000 salary and £5,000 of dividends — a basic-rate taxpayer whose dividends stay within the basic band:

Under the old 8.75% rate the same dividends would have cost £393.75. The April 2026 increase adds £90 — exactly 2% of the £4,500 taxed above the allowance.

How the £500 dividend allowance actually works

The dividend allowance lets you receive £500 of dividends each year at a 0% rate. It is not an exemption that disappears from your income: the £500 still counts towards your total income when working out which band your other income falls into. It simply taxes the first £500 of dividends at nothing.

That distinction matters near a threshold. Because the allowance occupies band space rather than removing income, dividends covered by it can still use up the room left in your basic-rate band — pushing later income, or further dividends, into the higher rate. The allowance has shrunk sharply in recent years, from £2,000 in 2022/23 to £1,000, then to its current £500 in 2024/25, where it remains for 2026/27.

Which rate applies? Dividends sit on top of your other income

Dividends are treated as the top slice of your income. HMRC stacks your earnings and savings income first, then your dividends on top, and the band the dividends land in sets their rate. So the same £5,000 of dividends can be taxed at 10.75% or 35.75% depending entirely on the income beneath it.

Take the same £5,000 of dividends, but now alongside a £60,000 salary. The salary alone reaches into the higher-rate band, so every pound of dividend stacks above the £50,270 threshold and is taxed at the higher rate:

Same dividends, more than three times the tax — because of the income sitting underneath them, not the dividends themselves. The dividend tax calculator does this stacking for you.

Dividends in ISAs and pensions are tax-free

The simplest way to pay no dividend tax is to hold the shares in a tax shelter. Dividends from shares, funds and investment trusts inside a stocks and shares ISA are completely free of UK tax, however large, and they never touch your dividend allowance. The 2026/27 ISA subscription limit is the gate, not the dividends themselves.

Dividends inside a pension — a SIPP or a workplace scheme — are also free of tax as they are received and reinvested. Pension tax instead falls on the way out: withdrawals are taxed as income, subject to the 25% tax-free element. For dividends held outside any shelter, in a general investment account, the rates above apply in full.

Are REIT dividends (PIDs) taxed the same way?

No — and this is the most common trap. The property-rental part of a Real Estate Investment Trust’s payout is a Property Income Distribution (PID), taxed as property income at your normal income-tax rate of 20%, 40% or 45% — not at dividend rates, and without the dividend allowance. Of the first 197 current dividend records compiled by this registry from official filings, 5 were flagged as PIDs.

REITs deduct 20% tax at source before paying a PID, which you then reclaim or offset against your bill through Self Assessment — a basic- rate taxpayer has nothing more to pay, while a higher-rate taxpayer owes the balance. Held inside an ISA or SIPP, PIDs can be paid gross. A fuller guide to PIDs and REIT taxation covers the withholding and reclaim in detail.

How are foreign-currency and overseas dividends taxed?

Overseas dividends are still taxed as dividends, on their sterling value, at the same UK rates — but they can arrive net of foreign withholding tax deducted abroad. Of this registry’s records with a stated currency, 53% — 96 of 180 — were declared in a currency other than sterling, mostly US dollars and euros, and weighted towards investment funds.

Many of those are UK-listed funds and companies that simply report in another currency, with no foreign tax involved. Where the paying company is genuinely overseas, the UK’s double-taxation treaties usually let you claim Foreign Tax Credit Relief for tax already paid abroad, up to the UK rate, so the same income is not taxed twice. The sterling figure used is the value when the dividend is paid.

What about special and scrip dividends?

Special dividends are taxed exactly like ordinary ones — the “special” label describes how often they are paid, not how they are taxed. They use the same allowance and the same rates. The registry flagged 3 special dividends among its early records.

Scrip dividends, where you take new shares instead of cash, are still taxable: you are taxed on the cash equivalent of the shares you receive, as dividend income, even though no cash reached you. The tax treatment differs from a dividend reinvestment plan (DRIP), where cash is paid and then used to buy shares on the market — a distinction covered in the scrip dividends vs DRIPs guide. In the registry’s early records, 17 dividends offered a scrip alternative.

How do you report and pay dividend tax to HMRC?

What you have to do depends on how much taxable dividend income you receive in the year. Dividends covered by the allowance, or by unused personal allowance, need not be reported at all.

The thresholds are about reporting, not about whether tax is due — tax can be owed on amounts well under £10,000. Keeping each dividend voucher or the registry record of an announcement makes the year-end total straightforward to assemble.

Quick answers

What is the dividend tax rate in 2026/27?

10.75% at the basic rate, 35.75% at the higher rate and 39.35% at the additional rate, on dividends above the £500 allowance. The first two rose by two percentage points on 6 April 2026.

How much can I earn in dividends before paying tax?

£500 a year under the dividend allowance, plus any unused personal allowance on top. Inside an ISA or pension, dividends are tax-free with no limit.

Did dividend tax go up in 2026?

Yes — the basic and higher rates each rose by two percentage points from 6 April 2026, announced at the Autumn Budget 2025. The additional rate was left at 39.35%.

Are dividends in an ISA taxed?

No. Dividends inside a stocks and shares ISA are entirely free of UK tax, however large, and do not use your dividend allowance.

Are REIT dividends taxed like normal dividends?

No. The PID part of a REIT payout is taxed as property income at 20%, 40% or 45%, with 20% deducted at source, and it does not use the dividend allowance.

This guide is general information about how UK dividend tax works in the 2026/27 tax year. It is not tax, investment or legal advice, and it does not recommend any investment. Tax depends on your individual circumstances and can change — check gov.uk or a qualified adviser before acting.