Dividend Tax for Limited Company Directors — Rates and Allowance 2026/27

What changed

Dividend tax rates increased from 6 April 2026. The basic and higher rates both rose by 2 percentage points at the Autumn Budget 2025, while the additional rate and the dividend allowance were left unchanged.

The 2026/27 dividend allowance and rates

The dividend allowance for 2026/27 is £500 — the first £500 of dividend income in the tax year is tax-free, regardless of your other income.

Above the allowance, dividend income is taxed at:

These figures should be checked against gov.uk before filing — confirm the specific rate that applies once your total income for the year is known, particularly if you are close to a band threshold.

How dividends are taxed alongside salary

Dividends are treated as the top slice of your income. Your salary, other employment income, and any other taxable income are counted first, filling your Personal Allowance and the basic/higher/additional rate bands. Your dividend income then sits on top of that — which band it falls into depends on where your salary and other income leave off.

This is why many limited company directors take a low salary (often around the Primary Threshold, to preserve state pension qualifying years while minimising National Insurance) and take the rest of their income as dividends — since dividends are not subject to National Insurance at all, only Income Tax at the rates above.

A simplified example

A director takes a salary of £12,570 (using the full Personal Allowance) and £40,000 in dividends in 2026/27.

• The first £500 of dividends is tax-free (dividend allowance)
• The salary uses up the Personal Allowance, so all £39,500 of taxable dividend falls somewhere in the basic or higher rate dividend bands depending on the exact figures
• The dividend tax due depends on exactly where the basic rate band ends relative to total income — this is where getting the calculation right (or wrong) makes a real difference to what is owed

This is illustrative only — the exact split between basic and higher rate dividend tax depends on your specific salary, any other income, and where you sit relative to the £37,700 basic rate band and £125,140 additional rate threshold.

Why this matters for planning

Because dividends stack on top of salary, small changes in salary level, other income (rental income, a second job, pension contributions) can shift a meaningful slice of your dividend income into a higher band. If you're planning dividend withdrawals for the year, it is worth modelling this before declaring dividends rather than after — dividends cannot be undeclared once minuted and paid.

What to check with your accountant or bookkeeper

• Confirm the current-year dividend allowance and rates directly on gov.uk before finalising a dividend declaration
• Make sure dividends are properly minuted and paid in line with available distributable reserves — an illegal dividend (paid when the company has insufficient reserves) creates its own separate problem
• Factor dividend tax into your personal Self Assessment payment on account calculations, since dividend tax is collected through Self Assessment, not PAYE

Note: this article covers UK limited company dividend taxation generally. QaisYasir Accounting Services' current service scope is bookkeeping, VAT/MTD, and management accounts — for personal Self Assessment or Corporation Tax filing advice specific to your company, speak to a qualified accountant or tax adviser.