Dividend Tax Rates
The rates at which dividends are taxed in excess of the Dividend Allowance. From 6 April 2026 the rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional) — the basic and higher rates rose 2 percentage points in the Autumn Budget 2025. For 2025/26 the rates were 8.75%, 33.75% and 39.35%. Dividend rates remain below the equivalent income tax rates on employment income because the underlying profits were already subject to Corporation Tax. Company directors and shareholders often need to balance salary and dividends to optimise their overall tax position, and the 2pp rise has narrowed the Ltd-company tax advantage at basic and higher rate levels.
How it works
The rate that applies to your dividends depends entirely on which income tax band they fall into once stacked on top of your other income — dividends don't have their own separate set of thresholds, they simply borrow the boundaries of the basic, higher, and additional rate bands. This is why the same total dividend income can result in very different tax bills for two people, depending on how much salary, self-employment profit, or pension income they already have.
The rates are deliberately set lower than the equivalent income tax rates on employment income, reflecting the fact that dividends are paid out of company profits that have already been subject to Corporation Tax — taxing them again at the full income tax rate would mean the same money being taxed twice. This gap is a major reason many company directors pay themselves a small salary topped up with dividends, though the 2 percentage point rise in the basic and higher dividend rates from 6 April 2026 narrowed that advantage.
Scotland's income tax bands differ from the rest of the UK, but dividend tax rates and thresholds do not — they're set by the UK government and apply identically whether you live in Edinburgh or Exeter, which can catch out Scottish taxpayers used to different rates applying to their salary.
Example: Dividends spanning two rate bands
Suppose your salary is £45,000, leaving £5,270 of room in the basic-rate band before you reach the £50,270 higher-rate threshold, and you also receive £10,000 in dividends.
The first £500 of dividends is covered by the Dividend Allowance — but it still uses up £500 of your remaining band space, leaving £4,770 of basic-rate room. That £4,770 is taxed at the basic dividend rate of 10.75%: £4,770 × 10.75% = £512.78. The last £4,730 falls above the higher-rate threshold and is taxed at 35.75%: £4,730 × 35.75% = £1,690.98. Total dividend tax: £512.78 + £1,690.98 = £2,203.76.
Frequently asked questions
Why are dividend tax rates lower than income tax rates on salary?
Because dividends are paid from profits that have already been taxed once through Corporation Tax at the company level, so a lower personal rate avoids taxing the same profit twice in quick succession.
Do dividend tax rates apply the same way in Scotland?
Yes — dividend tax rates and thresholds are set UK-wide and don't follow the separate Scottish income tax bands, even though your salary would be taxed under Scottish rates.
Did dividend tax rates change for 2026/27?
Yes, the basic and higher dividend rates both rose by 2 percentage points to 10.75% and 35.75% from 6 April 2026 following the Autumn Budget 2025; the additional rate stayed at 39.35%.
Related Terms
Dividend Tax
Tax payable on dividend income received from shares in UK and overseas companies, above the Dividend Allowance.
Dividend Allowance
The amount of dividend income you can receive each tax year completely free of tax, currently set at £500.
Basic Rate
The standard income tax rate of 20% applied to taxable income between the Personal Allowance and the higher-rate threshold, currently £12,571 to £50,270 in England, Wales, and Northern Ireland.
Higher Rate
The income tax rate of 40% applied to taxable income above £50,270 up to £125,140 in England, Wales, and Northern Ireland.
Additional Rate
The highest income tax rate in England, Wales, and Northern Ireland, charged at 45% on taxable income above £125,140.
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