Dividend tax rates rose in April 2026 — what it means

The dividend tax rates rose on 6 April 2026. The basic rate moved from 8.75% to 10.75%, the higher rate from 33.75% to 35.75%, and the additional rate held at 39.35%. The £500 Dividend Allowance is unchanged. The rise was announced at the Autumn Budget 2024 and confirmed in HMRC’s 2026/27 rates and allowances publication. For most ordinary investors the additional annual tax bill is modest (typically £40–£300), but for limited-company director-shareholders extracting profit as dividends the change is meaningful enough to warrant rethinking the salary-versus-dividend split.

This walks through who’s affected, how much extra you’ll pay, and the planning responses that make sense.

What changed and when

From 6 April 2026 (start of the 2026/27 tax year):

Band	Old rate (2025/26)	New rate (2026/27)	Change
Basic-rate band (income up to £50,270)	8.75%	10.75%	+2.0 pp
Higher-rate band (£50,270–£125,140)	33.75%	35.75%	+2.0 pp
Additional-rate band (above £125,140)	39.35%	39.35%	unchanged

The Dividend Allowance — the first £500 of dividend income that’s tax-free each year — is unchanged.

The change applies to dividends paid on or after 6 April 2026. Dividends paid before that date are still taxed at the old rates.

The official source is HMRC’s rates and allowances for 2026/27. The original announcement was made at the Autumn Budget 2024.

Who’s affected — and by how much

The rate rise affects anyone receiving dividends outside an ISA, SIPP or other tax wrapper. Dividends inside an ISA continue to be completely tax-free.

Ordinary share investors

For an investor holding dividend-paying shares in a general investment account (GIA), the extra tax depends on their total dividend income and tax band.

A worked example for a basic-rate taxpayer with £6,000 of dividends in 2026/27:

• Dividend allowance covers: £500.
• Taxable dividends: £5,500.
• New tax: £5,500 × 10.75% = £591.
• Old tax: £5,500 × 8.75% = £481.
• Extra cost in 2026/27: £110.

For a higher-rate taxpayer with the same £6,000 of dividends:

• New tax: £5,500 × 35.75% = £1,966.
• Old tax: £5,500 × 33.75% = £1,856.
• Extra cost in 2026/27: £110.

The 2 percentage-point rise produces the same absolute extra-tax figure across taxable dividend amounts within either the basic or higher band — £20 extra per £1,000 of taxable dividend income.

Director-shareholders of limited companies

The change bites harder for owner-directors who extract profit as dividends. A typical pattern: minimal salary at the NI threshold (~£12,570) plus the rest as dividends. The dividend tax rise increases the personal tax burden on each extracted pound.

A worked example for a sole-director limited company in 2026/27 (basic-rate dividend recipient):

• Company profit: £40,000.
• Corporation tax at 19% (small profits rate): £7,600.
• After-tax profit available for dividend: £32,400.
• Dividend tax: (£32,400 − £500) × 10.75% = £3,429.
• Total combined tax: £7,600 + £3,429 = £11,029 (27.6% effective).

Under the old 8.75% basic dividend rate, the same scenario produced £10,392 of combined tax — a 26.0% effective rate. The rate rise costs this director-owner roughly £637 in 2026/27.

For higher-profit companies (£80k+), the absolute increase scales up but the percentage impact is similar.

The case for moving dividends into an ISA

The April 2026 rate rise has strengthened the case for holding dividend-paying shares inside the Stocks & Shares ISA wrapper:

• ISA dividends are completely tax-free, regardless of amount.
• They don’t use the £500 Dividend Allowance.
• They don’t need declaring on Self Assessment.

For investors with substantial unsheltered holdings, the bed-and-ISA mechanism — sell outside the wrapper, transfer cash into the ISA, rebuy inside — has become more attractive. The annual £20,000 ISA allowance limits how much can be moved each year, but the cumulative compounding tax saving over 10–20 years on a typical dividend portfolio is meaningful.

See our bed-and-ISA guide for the mechanics.

Planning responses for director-shareholders

The salary-versus-dividend optimisation for limited-company owners has shifted. Things worth re-examining with an accountant:

1. Salary up to the secondary NI threshold

Most owner-directors already take a salary up to the NI primary threshold (£12,570) to use the personal allowance without paying employee NI. Some go higher to take advantage of corporate-tax-deductible salary — the maths now favours this slightly more, because the “dividend route” alternative is 2pp more expensive.

2. Employer pension contributions

Employer pension contributions from the company are corporation-tax-deductible AND avoid both income tax and NI for the director. With dividends now slightly more expensive personally, the relative case for putting company profit into the director’s pension has strengthened.

See our self-employed pension guide for the limited-company section.

3. Spouse / civil partner shareholding

If the spouse has unused basic-rate band, a shareholder transfer can extract dividends through them at the lower rate. This was already a common planning move; it’s now slightly more valuable.

4. Retain in the company

If the dividend isn’t needed immediately, retaining profit in the company defers the dividend tax. The trade-off: future dividend extraction may face rates that have risen further.

What hasn’t changed

Several aspects of the dividend tax framework stay the same:

• Dividend Allowance: still £500 per tax year.
• Additional-rate band: still 39.35%.
• Order of taxation: dividends sit on top of other income; non-dividend income uses bands first.
• ISA, SIPP, pension treatment: still completely tax-free.
• Foreign withholding tax credit: still available against UK dividend tax.

When was the rise announced?

The April 2026 rate rise was announced at the Autumn Budget 2024 (30 October 2024) and was confirmed in the relevant Finance Act. The Spring Statement 2026 (3 March 2026) didn’t introduce further dividend tax changes — Rachel Reeves explicitly held back on new tax announcements at the spring fiscal event.

The Autumn Budget 2025 (November 2025) introduced other changes (cash ISA cap, pension IHT — both effective April 2027) but no further dividend rate changes.

Worked example: an investor approaching the higher band

Emma earns £48,000 PAYE salary and receives £4,000 of dividends from a directly-held UK equity portfolio outside ISA. For 2026/27:

• Personal allowance: £12,570 (used by salary).
• Salary in basic-rate band: £35,430 at 20% = £7,086.
• Combined income: £52,000.
• Of the £4,000 dividends:
  • First £500: tax-free (dividend allowance).
  • Remaining £3,500: split — first £1,770 sits in basic band (10.75%), remaining £1,730 in higher band (35.75%).
  • Tax: £1,770 × 10.75% = £190 + £1,730 × 35.75% = £619. Total dividend tax: £809.

Under the old rates: £1,770 × 8.75% + £1,730 × 33.75% = £155 + £584 = £739. The rate rise costs Emma £70 in 2026/27.

If she had held the same dividends inside her Stocks & Shares ISA, the entire £809 would have been saved.

Internal links

• Do I pay tax on dividends from shares UK?
• Bed-and-ISA explained
• Can I have a SIPP and a workplace pension at the same time?

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This guide is information, not regulated financial advice. Rates verified against HMRC’s 2026/27 rates and allowances on 23 May 2026. Tax rules change — confirm on gov.uk before acting on a specific decision.