Breakdown
How it works
Order of stacking: personal allowance, then non-savings income, then dividends. Any personal allowance left after other income shelters dividends first; the next £500 is covered by the dividend allowance (it still uses up band); the rest is taxed at the dividend rates for whichever band it falls in. The basic and higher dividend rates rose by 2 points from April 2026.
Formula
Worked example
Salary £35,000, dividends £20,000: no spare personal allowance; £500 allowance; £14,770 fills the basic band at 10.75% = £1,588; £4,730 at 35.75% = £1,691. Total £3,279.
Frequently asked questions
What changed in April 2026?
The basic dividend rate rose from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. The additional rate stays at 39.35% and the allowance at £500.
Do I pay tax on dividends in an ISA?
No. ISA and pension dividends are entirely tax-free and do not use the allowance or count toward bands.
Is a small salary plus dividends still efficient for company directors?
Less so than before: 10.75% dividend tax on top of 25% corporation tax (19% small profits) narrows the gap with salary, but it still avoids employee and employer NI. Run both scenarios.
How do I pay dividend tax?
Up to £10,000 can be collected through your tax code if you ask HMRC; otherwise through Self Assessment.