How are dividends taxed in the UK?▾
Dividends are taxed at special rates that are lower than income tax rates. For 2026/27, the first £500 of dividends is tax-free (the dividend allowance). After that, basic rate taxpayers pay 10.75%, higher rate taxpayers pay 35.75%, and additional rate taxpayers pay 39.35%. The ordinary and upper rates each rose two percentage points on 6 April 2026 — they were 8.75% and 33.75% in 2025/26 — while the additional rate was left at 39.35%. Dividends use up your tax bands after salary and other income.
What is the dividend allowance for 2026/27?▾
The dividend allowance for 2026/27 is £500, unchanged from 2025/26. The first £500 of dividend income you receive in the tax year is charged at 0% regardless of which tax band you are in. One detail that catches people out: the allowance is a nil-rate band, not an exemption, so it still uses up £500 of your basic rate band. If your dividends straddle the £50,270 boundary, that shifts £500 of them from 10.75% up to 35.75%. The allowance was reduced from £1,000 in 2023/24 and £2,000 in 2022/23.
Do dividends count towards my tax bands?▾
Yes. Dividends are added on top of your salary and other income to determine which tax band they fall into. If your salary already pushes you into the higher rate band, your dividends will be taxed at the higher dividend rate of 35.75% (after the £500 allowance).
Is it more tax-efficient to take dividends or salary?▾
For most limited company directors, a combination of low salary (around £12,570) plus dividends is the most tax-efficient approach. Dividends do not attract National Insurance contributions, and the dividend tax rates are lower than income tax rates. However, the optimal split depends on your total income level.
Do I pay National Insurance on dividends?▾
No. Dividends are not subject to National Insurance contributions, which is one of the key reasons they are more tax-efficient than salary. Salary attracts both employee NI (8% between £12,570 and £50,270) and employer NI, which rose to 15% on earnings above the £5,000 secondary threshold on 6 April 2025 (it was 13.8% above £9,100 in 2024/25).
What happens to my personal allowance if I earn over £100,000?▾
Your personal allowance is reduced by £1 for every £2 of income above £100,000. This means your personal allowance is completely eliminated once your income reaches £125,140. This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140.
Can I take dividends from retained profits?▾
Yes, dividends can only be paid from accumulated retained profits after corporation tax. You cannot pay dividends if the company does not have sufficient distributable reserves. Doing so would be an illegal dividend and the director would be personally liable to repay it.
How do I declare dividend income to HMRC?▾
You must report dividend income on your Self Assessment tax return if your dividends exceed the £500 allowance, your total dividend income exceeds £10,000, or you have any other reason to file a return. You need to register for Self Assessment if you have not already.
Are dividends from ISAs taxable?▾
No. Dividends received from shares held within an ISA (Individual Savings Account) are completely tax-free. They do not count towards your dividend allowance or your tax bands. This makes ISAs a very tax-efficient wrapper for dividend-paying investments.
What is the most tax-efficient salary for a company director in 2026/27?▾
The most commonly recommended salary for 2026/27 is £12,570, which equals the personal allowance. This means no income tax is due, and if the salary is at or below the NI primary threshold (£12,570), no employee NI is due either. The company still gets a corporation tax deduction on the salary paid. With the dividend upper rate now 35.75%, the low-salary-plus-dividends route is a little less generous than it was in 2025/26, but it still beats taking the same money as salary.