Dividend Tax Rates 2026/27: What the FA 2026 Rate Rise Costs You

On 6 April 2026 the two most commonly paid dividend tax rates went up by two percentage points. Section 4 of Finance Act 2026, which received Royal Assent on 18 March 2026, raised the dividend ordinary rate from 8.75% to 10.75% and the dividend upper rate from 33.75% to 35.75%.^[1] The additional rate is unchanged at 39.35%, and the dividend allowance is unchanged at £500.^[2]

This article is the 2026/27 edition of our dividend rates coverage. It deals only with what changed, what the change costs at typical director extraction levels, and the timing points that follow. If you want the mechanics from first principles, how the allowance works, how dividends stack on top of other income, how the bands are allocated, that is all covered in our dividend tax rates 2025/26 guide, and the fundamentals there still apply. Only the percentages have moved.

The 2026/27 dividend tax rates at a glance

Band	2025/26 rate	2026/27 rate	Change
Dividend allowance (first £500)	0%	0%	No change
Basic rate band (ordinary rate)	8.75%	10.75%	+2.0 points
Higher rate band (upper rate)	33.75%	35.75%	+2.0 points
Additional rate band	39.35%	39.35%	No change

The new rates apply to dividend income received from 6 April 2026 onwards, which in practice means the 2026/27 tax year and later years.^[1] The change was made by amending the rates in section 8 of the Income Tax Act 2007, the section that has held the dividend rates since the current system began.^[3]

What did not change

Almost everything around the rates is static for 2026/27, which makes the cost of the rise easy to isolate:

• The dividend allowance stays at £500. It was not cut further. It still works the same way: the first £500 of dividend income is taxed at 0% but still occupies band space.^[2]
• The additional rate stays at 39.35%. Dividends falling above £125,140 of total income are taxed exactly as they were in 2025/26.
• The bands and thresholds are unchanged. The personal allowance remains £12,570, the basic rate band remains £37,700 (so the higher rate threshold remains £50,270), and the additional rate threshold remains £125,140.^[4]

Because the thresholds have not moved, no one drops into a lower band to soften the blow. If your income is the same in 2026/27 as it was in 2025/26, the same slices of dividend sit in the same bands, and the basic and higher rate slices simply cost two points more.

The simple rule: 2% of your banded dividends

The extra cost of the rise is easy to state. For every pound of dividend income taxed at the ordinary or upper rate, you pay an extra 2p compared with 2025/26. Dividends covered by the £500 allowance cost nothing extra, and dividends taxed at the additional rate cost nothing extra either, because that rate did not move.

So the additional tax is 2% of your dividends that fall in the basic and higher rate bands. Two worked examples show the scale.

Example 1: basic rate director

A director takes a £12,570 salary (fully covered by the personal allowance) and £37,700 in dividends, filling the basic rate band exactly.

• First £500 of dividends: covered by the allowance, £0 tax in both years.
• Remaining £37,200 at the ordinary rate: at 8.75% (2025/26) that was £3,255. At 10.75% (2026/27) it is £3,999.

Extra cost: £744 a year, which is 2% of the £37,200 taxed in the band.

Example 2: higher rate director

The same £12,570 salary, this time with £75,000 in dividends, taking total income to £87,570.

• First £500: allowance, £0.
• Next £37,200 (the rest of the basic rate band): £3,255 at 8.75% in 2025/26, now £3,999 at 10.75%.
• Remaining £37,300 in the higher rate band: £12,588.75 at 33.75% in 2025/26, now £13,334.75 at 35.75%.

Total dividend tax rises from £15,843.75 to £17,333.75. Extra cost: £1,490 a year, again exactly 2% of the £74,500 of dividends taxed in the two bands.

For directors with income above £125,140 the arithmetic is gentler in proportional terms: the slice taxed at 39.35% is unchanged, so however large the dividend, the maximum extra cost from this rise is 2% of the basic and higher rate slices. For an all-dividend income above £125,140, where the personal allowance is fully tapered away, that is 2% of £37,200 in the basic rate band plus 2% of the £87,440 higher rate band, roughly £2,490 a year, however large the dividend above that point.

Timing: which year does a dividend fall into?

The rate that applies depends on the tax year the dividend is treated as received, and this is where the 6 April 2026 boundary matters:

• An interim dividend is taxed in the year it is actually paid (money or book entry to the director's loan account).
• A final dividend is taxed in the year it becomes due and payable, which is normally the date of the shareholders' resolution unless a later payment date is specified.

A dividend lawfully declared and paid on or before 5 April 2026 sits in 2025/26 and keeps the old rates. A dividend paid on or after 6 April 2026 is a 2026/27 dividend at the new rates, whatever period of profits it relates to. What you cannot do is decide in July 2026 that a payment made in May was "really" a 2025/26 dividend. The paperwork, the board or shareholder approval and the payment date have to support the year claimed, and dividends can only ever be paid out of distributable profits. If your company's reserves position is marginal, that constraint matters more than the rate change, and it is a separate topic from this one.

When you actually feel it: Self Assessment and payments on account

The new rates first bite on your 2026/27 Self Assessment return, due for filing and payment by 31 January 2028. But the cash flow effect arrives in stages:

• Your payments on account for 2026/27 (31 January 2027 and 31 July 2027, where they apply) are based on your 2025/26 liability, so they will underestimate the year if your dividend level is unchanged.
• The shortfall lands as a balancing payment on 31 January 2028, alongside a first payment on account for 2027/28 that is calculated at the new, higher level.

January 2028 is therefore the pinch point: a higher balancing payment and a stepped-up payment on account arriving together. If your dividends are substantial, it is worth pencilling in the larger figure now rather than discovering it in the January 2028 tax run.

Does the rise change the salary versus dividend answer?

Not fundamentally, for most owner-managers. Dividends still carry no employee or employer National Insurance. Additional salary above the £5,000 secondary threshold costs the company 15% employer NIC before the director pays income tax and employee NIC on it, while a dividend is paid out of profits that have suffered corporation tax and then bears dividend tax at the new rates. Two extra points on the dividend side narrows the margin but does not reverse it at typical profit levels.

What the rise does do is make the sizing decision more sensitive. Whether to fill the basic rate band, stop at the higher rate threshold, or retain profits in the company is now a slightly different calculation than it was in 2025/26, and the answer interacts with the company's own corporation tax position. Our salary and dividend split guide works through the structure of that decision, and our guide to how corporation tax and dividend tax combine covers the two-layer effect. Both are written on 2025/26 rates, so substitute 10.75% and 35.75% for the dividend layer when you apply them to 2026/27; the logic is unchanged.

What to do now

• Rerun your 2026/27 extraction plan with the new rates rather than rolling forward last year's dividend level on autopilot. The right total may be the same; the tax on it is not.
• Budget for the extra tax: 2% of your banded dividends, so £744 at a full basic band and around £1,490 at the £75,000 dividend level in our example.
• Check your dividend paperwork discipline around the year boundary. The tax point rules reward companies whose minutes, vouchers and payment dates are in order.
• Plan for January 2028, when the balancing payment and stepped-up payment on account land together.

If you want a 2026/27 extraction plan run on your actual numbers, salary, dividends, other income and company profits together, contact our team. We prepare these calculations for directors across the UK every year, and the years after a rate change are exactly when the standing plan is worth re-testing.

Sources

1. Finance Act 2026, section 4 (rates of tax on dividend income). legislation.gov.uk. https://www.legislation.gov.uk/ukpga/2026/11/section/4. Retrieved 2026-07-23.
2. Tax on dividends. GOV.UK. https://www.gov.uk/tax-on-dividends. Retrieved 2026-07-23.
3. Income Tax Act 2007, section 8 (dividend ordinary, upper and additional rates, as amended by Finance Act 2026). legislation.gov.uk. https://www.legislation.gov.uk/ukpga/2007/3/section/8. Retrieved 2026-07-23.
4. Income Tax rates and Personal Allowances. GOV.UK. https://www.gov.uk/income-tax-rates. Retrieved 2026-07-23.