What is the dividend allowance in 2026/27?

£500. This is the amount of dividend income you can receive tax-free each year. It fell from £2,000 in 2022/23 to £1,000 in 2023/24 and to £500 in 2024/25 onwards.

What are the dividend tax rates in 2026/27?

8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. Dividends sit on top of other income when calculating which band applies.

Tax Law

Dividend Tax Calculator 2026/27 — Company Directors & Investors

Q: Do I pay NI on dividends?

No. Dividends are not subject to National Insurance — either employee or employer NI. This is a key advantage for company directors extracting profits as dividends.

Dividends are taxed differently from salary. The dividend allowance is just £500 in 2026/27 — down from £2,000 in 2022/23. This calculator works out exactly how much tax a company director or investor owes on dividend income.

📊 Dividend Tax Calculator — 2026/27

Dividend allowance: £500 | Basic rate: 8.75% | Higher rate: 33.75% | Additional rate: 39.35%

Other income this tax year (salary, pension, etc.) (£)

Total dividend income this tax year (£)

Personal Allowance (£)

Are you a Scottish taxpayer?

The Shrinking Dividend Allowance

The dividend allowance — the amount of dividend income you can receive tax-free each year — has been cut dramatically since 2016:

2016/17 to 2021/22: £2,000
2022/23: £2,000 → cut to £1,000 from 2023/24
2023/24: £1,000 → cut to £500 from 2024/25 onwards

This means a company director extracting £30,000 in dividends now pays tax on £29,500 of it — compared to £28,000 when the allowance was £2,000.

Dividend Tax Rates 2026/27

Dividends are taxed at special rates that are lower than income tax rates for the same band. However, dividends sit on top of other income when calculating which band applies:

Basic rate band (up to £50,270): 8.75%
Higher rate band (£50,271 – £125,140): 33.75%
Additional rate (above £125,140): 39.35%

Dividends vs Salary — Why Company Directors Compare the Two

For owner-directors of limited companies, choosing how much to pay yourself as salary versus dividends is one of the biggest tax-planning decisions of the year. Salary is deductible against Corporation Tax (reducing the company's taxable profit) but attracts employee and employer National Insurance once it rises above the relevant thresholds. Dividends, by contrast, are paid from post-tax company profits — so they don't reduce Corporation Tax — but they carry no National Insurance at all, either for the company or the individual.

The combined effect is that a small salary (typically set at the NI secondary threshold to avoid triggering employer NI, while still qualifying for a state pension year) topped up with dividends usually produces a lower overall tax burden than taking the same total amount purely as salary. However, as dividend tax rates have risen and the allowance has shrunk from £5,000 in 2017/18 down to just £500 today, the gap between the two approaches has narrowed considerably — for very high dividend amounts, the difference is now much smaller than it once was.

Practical Ways to Reduce Dividend Tax

A handful of legitimate planning options can reduce the tax paid on dividend income:

Use an ISA: Dividends earned on shares or funds held inside a Stocks & Shares ISA are entirely free of dividend tax, with no annual limit on how much dividend income the ISA can shelter (subject to the £20,000/year ISA subscription limit for new contributions).
Spread dividends across a tax year boundary: If you control the timing of dividend declarations (as many company directors do), splitting a large dividend across two tax years can make use of two separate £500 allowances and potentially keep more of the income in the basic rate band.
Transfer shares to a spouse or civil partner: Transfers of shares between spouses or civil partners are exempt from Capital Gains Tax, so if one partner has unused basic-rate band or personal allowance, transferring shares to them before a dividend is declared can significantly reduce the household's combined tax bill. This only works with a genuine, unconditional transfer of the shares themselves.
Increase pension contributions: Employer pension contributions made by a company on behalf of a director are usually an allowable business expense and don't count as a benefit in kind, offering a tax-efficient alternative to extracting further dividends once basic needs are met.

Can my spouse and I split dividends to pay less tax?+

Yes, if your spouse or civil partner genuinely owns shares in the company (not just for tax purposes — HMRC scrutinises arrangements that look artificial under the "settlements" anti-avoidance rules). If they have unused personal allowance or basic-rate band, transferring some shareholding to them before a dividend is declared can mean a larger portion of the combined income is taxed at lower rates, or falls within their own £500 dividend allowance.

What happens if a large dividend pushes me into a higher tax band?+

Dividends are treated as the top slice of your income for tax purposes, sitting above salary, self-employment profit, and other income. If a dividend payment pushes your total income over the £50,270 basic-rate threshold, only the portion above that threshold is taxed at the higher 33.75% rate — the rest continues to be taxed at 8.75%. This calculator automatically splits your dividend income across the correct bands based on your other income.

Do I pay NI on dividends?+

No. Dividends do not attract National Insurance contributions — neither employee nor employer NI. This is one of the main tax advantages of extracting profits as dividends rather than salary, though the difference has narrowed significantly as dividend tax rates have risen.

How do I report dividend income?+

You report dividends on your Self Assessment tax return (SA100, supplementary pages SA103). The deadline for online returns is 31 January following the tax year. If your total dividend income is £10,000 or less and you pay tax at the basic rate only, HMRC may collect tax through your PAYE tax code instead.

What is the most tax-efficient salary and dividend split?+

For most owner-directors with no other income, the optimal split is a salary at the National Insurance primary threshold (£12,570/year in 2026/27) and the remainder as dividends up to the basic rate band. This minimises NI while using the personal allowance efficiently. The optimal split depends on your specific circumstances — take advice from an accountant.