What are the dividend tax rates in the UK? | 2026/27 Guide

To determine the correct tax liability for a client’s investment income, practitioners must apply the updated dividend tax rates introduced for the 2026/27 tax year. The UK government has increased the taxation on dividend income to narrow the gap between tax paid on employment income and tax paid on asset income.

The Finance Act 2026 significantly alters the dividend ordinary and upper rates, effective from 6 April 2026.

The 2026/27 Dividend Tax Rates

Section 4 of the Finance Act 2026 amends section 8 of the Income Tax Act 2007 (ITA 2007), increasing the baseline rates for dividend income.  You must assess the individual’s total income to identify which of the three dividend tax bands applies.

• Dividend Ordinary Rate (Basic Rate Taxpayers): The ordinary rate increases from 8.75% to 10.75%.  This rate applies to dividend income falling within the basic rate band.
• Dividend Upper Rate (Higher Rate Taxpayers): The upper rate increases from 33.75% to 35.75%.  This rate applies to dividend income falling within the higher rate band.
• Dividend Additional Rate (Additional Rate Taxpayers): The additional rate remains frozen at 39.35%.  This rate applies to dividend income exceeding the additional rate threshold.

“In section 8 of ITA 2007 (which provides, among other things, for the dividend ordinary rate and dividend upper rate)— (a) in subsection (1) (the dividend ordinary rate), for “8.75%” substitute “10.75%”, and (b) in subsection (2) (the dividend upper rate), for “33.75%” substitute “35.75%”.”

The Dividend Allowance (Nil Rate Band)

Before applying the 10.75%, 35.75%, or 39.35% rates, you must apply the dividend allowance. Under section 13A of ITA 2007, an initial portion of dividend income is charged at a 0% nil rate.

For the 2026/27 tax year, the dividend allowance remains £500. The government previously reduced this allowance from £1,000 to £500 on 6 April 2024, and it stays at this reduced level for 2026/27.  All UK taxpayers receive this £500 allowance, regardless of their marginal income tax band. However, the £500 still uses up part of the relevant tax band, effectively pushing other dividend income higher up the progressive tax scales.

Calculating the Tax: Income Bands and Thresholds

To establish whether dividends fall into the ordinary, upper, or additional rate bands, you stack dividend income on top of all other non-savings and savings income.

For the 2026/27 tax year, the underlying income tax parameters operate as follows:

• Personal Allowance: £12,570. You apply this against non-dividend income first, leaving any unused portion available to offset dividend income.
• Basic Rate Band: Applies to the next £37,700 of income (up to a Higher Rate Threshold of £50,270). The main income tax basic rate is 20%.
• Higher Rate Band: Applies to income between £50,270 and £125,140. The main income tax higher rate is 40%.
• Additional Rate Threshold: Applies to all income above £125,140.  The main income tax additional rate is 45%.

If a client earns £60,000 in employment income and receives £2,000 in dividends during 2026/27, the employment income fully absorbs the Personal Allowance and the basic rate band, placing the client in the higher rate band. The first £500 of the dividend is taxed at 0% (the dividend allowance). The remaining £1,500 is taxed at the new dividend upper rate of 35.75%, resulting in a dividend tax liability of £536.25.

Trusts and Estates

When advising trustees and personal representatives, you must apply the dividend trust rate. Under section 9 of ITA 2007, the dividend trust rate aligns with the dividend additional rate, meaning trustees pay tax on dividend income at 39.35% for the 2026/27 tax year.

Furthermore, when a close company makes a loan or confers a benefit on a participator under sections 455 or 464A of the Corporation Tax Act 2010, the resulting section 455 tax charge aligns with the dividend upper rate. Consequently, for 2026/27, the section 455 tax rate rises to 35.75%.

Summary of 2026/27 Dividend Tax Rates

Next steps for research: Review the updated ordering rules under Chapter 3 of ITA 2007 taking effect from April 2027, which will mandate that general reliefs and allowances apply to property, savings, and dividend income only after they have been applied to other sources of income.