UK dividend tax bands for the 2025/26 tax year run at 8.75% within the basic rate band, 33.75% within the higher rate band, and 39.35% at the additional rate, with the first £500 of dividends each year taxed at 0% under the dividend allowance. From 6 April 2026, the basic and higher rates each rise by two percentage points; the additional rate stays put.
The 2025/26 Dividend Tax Bands
Dividend income has its own set of rates that sit below the standard 20%, 40%, and 45% income tax rates, because the company paying the dividend has already paid corporation tax on its profits. The rates are set under section 13 of the Income Tax Act 2007.1UK Parliament. Income Tax Act 2007, Section 13
- Basic rate of 8.75% applies to dividends falling within taxable income up to £50,270.
- Higher rate of 33.75% applies to dividends falling within taxable income from £50,271 to £125,140.
- Additional rate of 39.35% applies to dividends on taxable income above £125,140.
The thresholds are the same ones used for employment and pension income.2GOV.UK. Income Tax Rates and Personal Allowances Only the percentages differ. These dividend rates apply UK-wide, including to Scottish taxpayers, even though Scotland sets its own rates for salary and pension income.
The £500 Dividend Allowance
Your first £500 of dividend income each tax year is taxed at 0%, whatever band the rest of your income sits in. The allowance was £2,000 until April 2023, dropped to £1,000, and then halved again to £500 from April 2024.3GOV.UK. Income Tax: Reducing the Dividend Allowance If you hold a diversified portfolio paying quarterly dividends, £500 goes quickly.
One catch: the allowance is a nil-rate band, not an exemption. The £500 still counts toward your total taxable income and can push other income into a higher band. Sit right at the boundary between basic and higher rate and a modest amount of dividend income could tip the balance, even though those dividends are themselves taxed at 0%.
How Dividends Stack on Top of Other Income
HMRC taxes different types of income in a set order. Employment income, pensions, and rental income go in first. Savings interest sits in the middle. Dividend income always goes on top. Your dividends are taxed at whichever rate is left after your other income has used up the lower bands.
A worked example makes this concrete. Say you earn a £45,000 salary in 2025/26 and receive £8,000 in dividends. The first £12,570 of salary is covered by your Personal Allowance at 0%.2GOV.UK. Income Tax Rates and Personal Allowances The remaining £32,430 of salary is taxed at 20%. That uses £45,000 of the basic rate band, leaving £5,270 of headroom before the higher rate threshold of £50,270.
Stack the dividends on top. The first £500 is covered by the dividend allowance at 0%. Of the remaining £7,500, only £5,270 fits inside the basic rate band and is taxed at 8.75% (£461). The final £2,230 spills into the higher rate band at 33.75% (£753). Total dividend tax: £1,214. Without the stacking rule, you might have assumed the whole £8,000 would be taxed at the basic rate.
What Changes From 6 April 2026
The Autumn Budget 2025 announced a two-percentage-point rise in the basic and higher dividend rates from 6 April 2026. The additional rate is unchanged. For 2026/27 the rates become:
- Basic rate: 10.75% (up from 8.75%)
- Higher rate: 35.75% (up from 33.75%)
- Additional rate: 39.35% (unchanged)
A basic rate taxpayer receiving £10,000 in taxable dividends will pay roughly £200 more per year under the new rates. A higher rate taxpayer with the same amount faces a similar increase. If you receive dividends either side of the change, the rate that applies depends on when the dividend is paid, not when it was declared. A dividend paid on 4 April 2026 uses the old rates; one paid on 7 April 2026 uses the new ones.
Income tax thresholds themselves remain frozen at current levels until at least April 2028, so the basic rate band still runs to £50,270 and the additional rate still starts at £125,140 in 2026/27.
The Personal Allowance Taper Between £100,000 and £125,140
Once your total income passes £100,000, your £12,570 Personal Allowance shrinks by £1 for every £2 above that figure. It disappears entirely at £125,140.2GOV.UK. Income Tax Rates and Personal Allowances Dividend income counts toward the total that triggers the taper.
That taper produces a steep effective rate in the £100,000 to £125,140 slice. Losing £1 of allowance for every £2 earned means an extra 20% on top of your marginal rate on that band of income. For dividends falling into this zone, the real rate can exceed 55%. This is the range where pension contributions or other reliefs have the biggest impact, because they reduce your adjusted net income and can restore some or all of the lost allowance.
Dividends Inside ISAs and Pensions
Dividends on shares held inside an Individual Savings Account are tax-free. The same applies to dividends inside registered pension schemes, including Self-Invested Personal Pensions.4GOV.UK. Changes to Tax Rates for Property, Savings and Dividend Income These dividends don’t count toward your total income, don’t use your £500 dividend allowance, and don’t affect which band your other income falls into.
A higher rate taxpayer receiving £5,000 in dividends outside an ISA pays roughly £1,519 in tax after the £500 allowance. The same dividends inside an ISA cost nothing. The annual ISA allowance is £20,000, giving real room to shelter dividend-paying investments.
How to Report and Pay the Tax
What you have to do depends on how much dividend income you receive. If your dividends fall entirely within the £500 allowance, you don’t need to tell HMRC.
If your taxable dividends total £10,000 or less and you don’t already file a Self Assessment return, you have two choices: ask HMRC to adjust your PAYE tax code so the tax is collected through your wages or pension, or contact HMRC directly after the tax year ends but before 5 October.5GOV.UK. Tax on Dividends – How to Report Tax on Dividends The PAYE route spreads the payment across your monthly pay, which eases cash flow but reduces take-home pay through the year.
If your dividend income is more than £10,000, you must file a Self Assessment return.5GOV.UK. Tax on Dividends – How to Report Tax on Dividends Register for Self Assessment by 5 October following the end of the tax year in which you received the income. The tax itself is due by 31 January after the tax year ends.6GOV.UK. Pay Your Self Assessment Tax Bill Miss that date and HMRC charges both interest and penalties.
Payments on Account
If you owe more than £1,000 through Self Assessment and less than 80% of your total tax was collected at source (through PAYE, for example), HMRC will require payments on account.7GOV.UK. Understand Your Self Assessment Tax Bill – Payments on Account These are advance payments toward next year’s tax, each equal to half of the previous year’s Self Assessment liability.
The first payment is due by 31 January (the same date as your balancing payment for the previous year), and the second by 31 July.6GOV.UK. Pay Your Self Assessment Tax Bill In your first year with significant dividend income you could face three payments on a single 31 January: the balancing payment for the year just ended, plus the first payment on account for the year ahead. HMRC won’t warn you in advance, so plan cash flow around it.