8.75% / 33.75% / 39.35% · No NI on dividends · Worked examples for every scenario · Updated May 2026
Dividend tax rates 2026/27
Dividends are taxed at different rates to salary and other income. The key advantage: no National Insurance. The rates for 2026/27 are:
Income band
Total income range
Dividend tax rate
Dividend allowance
First £500 of dividends
0%
Basic rate
Total income up to £50,270
8.75%
Higher rate
Total income £50,271–£125,140
33.75%
Additional rate
Total income above £125,140
39.35%
Compare these to the equivalent salary tax rates: basic rate income tax is 20%, higher rate is 40%, additional rate is 45%. Dividends are taxed at significantly lower rates — especially at the higher and additional rates — but the trade-off is that dividends come from post-corporation-tax company profits.
No NI on dividends: Unlike salary, dividends attract zero National Insurance — neither employee NI (8–2%) nor employer NI (15%). This is the primary reason company directors use salary-dividend splits rather than paying themselves a pure salary.
How dividends stack on top of other income
The critical rule for dividend taxation: dividends are always taxed last, stacking on top of all other income. The order in which HMRC taxes income is:
Non-savings income: salary, pension, trading profits, rental income
Savings income: bank interest, bond interest
Dividend income: dividends from shares or limited company
This means your salary and other income fill up the lower tax bands first. Dividends then sit on top, potentially in higher or additional rate bands even if the dividends themselves are modest amounts.
Example of band stacking: You earn £46,000 salary. You receive £8,000 in dividends. Total income: £54,000 — above the £50,270 basic rate limit. Of your £8,000 dividends: £4,270 falls in the basic rate band (8.75%) and £3,730 falls in the higher rate band (33.75%). The stacking of salary and dividends pushes part of the dividend income into the higher band.
Salary uses up the personal allowance (£12,570) and basic rate band (£12,571–£50,270). Dividends then enter at whatever point total income has reached — which may be part or fully within the higher rate band.
No NI on dividends — the key advantage
The most valuable characteristic of dividend income is that it is completely exempt from National Insurance — both employee and employer contributions. For a company director, this creates a significant advantage:
Income type
Income tax rate (basic)
Employee NI
Employer NI
Combined cost rate
Salary (basic rate range)
20%
8%
15%
~43% (all taxes on gross)
Dividends (basic rate)
8.75%
0%
0%
8.75% (after CT)
The NI exemption is why dividends are attractive even though corporation tax (19–25%) has already been paid on the profits from which dividends are distributed. At higher income levels, the gap narrows — dividend tax at 33.75% is only 6.25% below the 40% higher rate, vs the 11.25% basic rate gap — but the NI saving remains.
Self assessment for dividend income
Dividend income
Self assessment required?
Up to £500
No (within allowance) — unless already in SA
£501–£10,000
Not mandatory — HMRC may adjust PAYE code. Register if no PAYE mechanism.
Over £10,000
Yes — must register for and file self assessment
Any amount (if already a director/sole trader)
Yes — always declare in SA return
If you receive dividends from your own company, you will almost certainly need to be in self assessment — both because you are a director and because dividend income from owner-managed companies typically exceeds £10,000. Register with HMRC by 5 October following the end of the tax year in which you first received dividends.
Failure to register and declare dividend income can lead to penalties plus interest on underpaid tax. HMRC has extensive data-matching capabilities and receives information on dividend payments from companies.
Worked examples
Example 1: Basic rate investor — salary + portfolio dividends
Dividends earned inside any ISA — Stocks and Shares ISA, Innovative Finance ISA, or Cash ISA — are completely exempt from dividend tax. They do not count toward the £500 allowance and require no self assessment declaration.
For investors building dividend income, prioritising ISA-wrapped investments over general investment accounts can save significant tax at higher income levels:
Annual dividend income
Tax outside ISA (higher rate)
Tax inside ISA
Annual saving
£5,000
£1,519
£0
£1,519
£10,000
£3,206
£0
£3,206
£20,000
£6,581
£0
£6,581
The annual ISA allowance is £20,000. Over 20 years of maximum contributions, a higher rate taxpayer could shelter very significant dividend income from all taxation.
Frequently asked questions
Dividend tax rates in 2026/27 are: 0% on the first £500 (dividend allowance), 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. No National Insurance is charged on any dividend income.
Yes. Dividends stack on top of all other income (salary, pension, rent). If your salary already uses most of the basic rate band, even a modest dividend can push you into higher rate dividend tax (33.75%). For example, if your salary is £48,000, any dividends over £2,270 (the remaining basic rate band) will attract higher rate dividend tax.
No. National Insurance is not charged on dividends. This is the primary tax advantage of taking dividends from your own limited company rather than salary — you avoid both employee NI (8% on income £12,570–£50,270) and employer NI (15% above £9,100). The combined NI saving can be substantial.
Dividends are taxed at lower income tax rates than salary (8.75% vs 20% at basic rate; 33.75% vs 40% at higher rate) and carry zero NI liability. However, dividends are paid from company profits that have already been subject to corporation tax (19–25%). Salary is deductible from company profits before corporation tax. The net efficiency depends on the total picture of CT rates and personal tax bands.