---
title: "What is limited company dividend tax? | 2026/27 UK Guide"
description: "When advising director-shareholders on profit extraction, practitioners must precisely define what limited company dividend tax entails for the current tax year. The government taxes dividends paid out of a company's post-corporation tax profits differently from standard employment income. For the…"
url: "https://www.accountingfirms.co.uk/knowledge-bank/what-is-limited-company-dividend-tax/"
updated: "2026-08-11"
category: Limited Company
---

# What is limited company dividend tax? | 2026/27 UK Guide

When advising director-shareholders on profit extraction, practitioners must precisely define what limited company dividend tax entails for the current tax year. The government taxes dividends paid out of a company's post-corporation tax profits differently from standard employment income.

For the 2026/27 tax year, the Finance Act 2026 introduces critical increases to the statutory dividend rates, significantly altering the optimal balance between salary and dividend extraction.

## The 2026/27 Dividend Tax Rates

Section 4 of the Finance Act 2026 directly amends section 8 of the [Income Tax](https://www.accountingfirms.co.uk/blog/hmrc-payment-niers/) Act 2007 (ITA 2007) to increase the baseline rates for dividend income, effective from 6 April 2026.  You must assess the individual shareholder'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 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 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 applies to dividend income exceeding the additional rate threshold.

> "(1) 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 calculating the [tax liability](https://www.accountingfirms.co.uk/blog/making-a-withdrawal-pension-payments/) at the rates outlined above, you must apply the statutory dividend allowance. Under section 13A of ITA 2007, an initial tranche of dividend income is charged at a 0% nil rate.

For the 2026/27 tax year, the dividend allowance remains strictly capped at **£500**.  The government previously reduced this allowance down from £2,000 to £1,000, and finally to £500 on 6 April 2024.  Every UK taxpayer receives this £500 allowance regardless of their marginal income tax band. However, this £500 still uses up part of the relevant tax band, effectively pushing any remaining dividend income higher up the progressive tax scales.

## Income Tax Thresholds and Stacking Rules

To establish whether a director's dividends fall into the ordinary, upper, or additional rate bands, you must stack their dividend income on top of their non-savings income (such as their director's salary).

The Finance Act 2026 continues to freeze the underlying income tax parameters for the 2026/27 tax year:

- **Personal Allowance:** £12,570.
- **Basic Rate Limit:** £37,700.

By adding the basic rate limit to the [personal allowance](https://www.accountingfirms.co.uk/blog/family-and-personal-companies-optimal-salary-for-2023-24/), the higher rate threshold is firmly set at **£50,270**.

If a director takes a salary of £12,570 (fully utilising the Personal Allowance) and declares a dividend of £40,000, the first £500 of the dividend is taxed at 0%. The next £37,200 fills the basic rate band and is taxed at the new 10.75% dividend ordinary rate. The remaining £2,300 spills over the £50,270 threshold into the higher rate band and is taxed at the new 35.75% dividend upper rate.

## Secondary Impacts: Section 455 Loans to Participators

The hike in dividend tax rates creates a direct, secondary tax consequence for overdrawn [director's loan accounts](https://www.accountingfirms.co.uk/blog/company-payment-of-directors-personal-expenses-whats-the-tax-position/).

When a close company makes a loan or confers a benefit on a participator, section 455 of the [Corporation Tax](https://www.accountingfirms.co.uk/blog/tell-hmrc-that-your-company-is-dormant/) Act 2010 (CTA 2010) imposes a temporary corporate tax charge. The legislation deliberately aligns this section 455 [tax rate](https://www.accountingfirms.co.uk/blog/badr-the-long-goodbye/) with the dividend upper rate.

Consequently, for any loans made to participators on or after 6 April 2026, the section 455 charge increases to **35.75%**.

## Payment Mechanism

Unlike a salary processed through PAYE, limited company dividend tax is not deducted at source by the company. The individual shareholder remains personally liable for the tax. The taxpayer must declare their dividend income on the Capital Gains and Income pages of their annual [Self Assessment tax return](https://www.accountingfirms.co.uk/knowledge-bank/what-should-i-do-if-ive-stopped-being-self-employed/), paying the resulting liability (and any required payments on account) by 31 January following the end of the tax year.

## Summary of 2026/27 Dividend Tax Rates

| Income Tax Band | Taxable Income Threshold | 2026/27 Dividend Rate | Statutory Authority |
| --- | --- | --- | --- |
| **Dividend Allowance** | First £500 of dividend income | 0% | ITA 2007, s 13A |
| **Dividend Ordinary Rate** | Up to £50,270 | 10.75% | FA 2026, s 4 / ITA 2007, s 8(1) |
| **Dividend Upper Rate** | £50,271 to £125,140 | 35.75% | FA 2026, s 4 / ITA 2007, s 8(2) |
| **Dividend Additional Rate** | Over £125,140 | 39.35% | ITA 2007, s 8(3) |
| **Section 455 Loan Charge** | N/A (Corporate Charge) | 35.75% | CTA 2010, s 455 |

*Next steps for research: Review the upcoming changes to the ordering of allowances taking effect from 6 April 2027, which will mandate that general reliefs and personal allowances must be applied to property, savings, and dividend income only after they have been fully applied against other sources of income.*