What is the dividend tax rate for 2026/27?

After your £500 allowance: 8.75% basic rate, 33.75% higher rate, 39.35% additional rate. These are lower than salary tax rates.

Do I pay National Insurance on dividends?

No, dividends are not subject to National Insurance, making them more tax-efficient than salary for company owners.

Can I pay myself entirely in dividends?

You can only pay dividends from company profits. Most directors take a small salary plus dividends for optimal tax efficiency.

How do I declare dividend income?

Through Self Assessment if dividends exceed £10,000, or if you're a higher rate taxpayer. Otherwise HMRC may adjust your tax code.

What records do I need for dividends?

Keep dividend vouchers showing date, amount, and shareholder details. Board minutes should record dividend declarations.

Dividends2026/27

What is Dividend? UK Definition 2026/27

Written by Waqas Sagar ACA, FCCA, FMAAT

•

Verified by ICAEW, ACCA & AAT

•Updated April 2026

Quick Answer

A payment made by a company to its shareholders from profits, taxed at special dividend tax rates.

Definition of Dividend

Dividends are distributions of company profits to shareholders. In the UK, dividends are taxed separately from other income at lower rates than salary. You receive a £500 tax-free dividend allowance for 2026/27.

For company directors, dividends are a tax-efficient way to extract profits as they don't attract National Insurance. However, they can only be paid from retained profits and must be properly documented.

Dividend — Key Facts for 2026/27

Dividend Allowance 2026/27	£500 tax-free
Basic rate	8.75%
Higher rate	33.75%
Additional rate	39.35%

How Dividend Works — Example

Dividend tax calculation

1Salary: £12,570 (uses Personal Allowance)
2Dividends: £40,000
3First £500: Tax-free (dividend allowance)
4Next £37,700: 8.75% = £3,299 (basic rate band)
5Remaining £1,800: 33.75% = £608 (higher rate)
6Total dividend tax: £3,907

How Dividend Affects Your Tax

Dividends are more tax-efficient than salary for company owners as no National Insurance is due. However, excessive dividends without salary can affect pension contributions and mortgage applications.

Official HMRC Guidance on Dividend

For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.

HMRC: Tax on dividends

Frequently Asked Questions about Dividend

Related Tax Terms

Dividend Allowance

The amount of dividend income you can receive tax-free each year - £500 for 2026/27.

Dividend Tax

Tax on dividend income at 8.75%, 33.75%, or 39.35% depending on your tax band.

Corporation Tax

Tax paid by UK limited companies on their profits at 19% or 25%.

Accuracy Note

This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.