Dividend Tax Calculator — The Honest 2026/27 Numbers

From 6 April 2026, the basic and higher dividend tax rates each rose by 2 percentage points — the basic rate from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The additional rate stayed unchanged at 39.35%. This is genuinely the highest dividend tax has been since the current allowance-based system was introduced.

In real terms, on a £50,000 dividend, a basic-rate taxpayer now pays roughly £1,000 more a year purely from this rate increase. A higher-rate director extracting £60,000 in dividends pays roughly £1,200 more a year — from exactly the same underlying company profit as before the change.

Which rate applies to your dividend income depends on which tax band that income falls into once stacked on top of your salary and other earnings — covered properly in the stacking section below.

Every individual gets a dividend allowance — the first slice of dividend income that's tax-free regardless of tax band. For 2026/27, that allowance is just £500, unchanged from the previous year but dramatically reduced from where it once stood.

Although no tax is paid on the first £500, it still counts toward your basic rate band when working out which rate applies to the rest — it's tax-free, but not invisible to the calculation.

Dividends are treated as the top slice of your income for tax purposes. Your salary and any other earnings are counted first, filling your tax bands from the bottom up, and dividend income sits on top of whatever's left.

This is exactly why a director on a modest £12,570 salary (equal to the Personal Allowance) taking a large dividend can find most of it taxed at the higher rate, not the basic rate — because the salary alone has already used up the tax-free Personal Allowance, and the dividend income above it starts filling the basic rate band, then spills into the higher rate band once that's exhausted too.

This is genuinely significant for anyone weighing up sole trader versus limited company status. As of the 2026/27 rates, a sole director who extracts all company profits immediately now takes home more as a sole trader than as a director, at every profit level — a reversal from how incorporation used to compare, driven directly by the April 2026 rate rise.

There's one notable exception: a director who employs at least one other person benefits from the Employment Allowance, which eliminates employer National Insurance on the director's own salary and restores the limited company advantage, but only up to roughly £26,200 of company profit. Above that, the comparison narrows again.

It's worth being clear that this doesn't mean incorporation no longer makes sense generally — the advantage now comes more from controlling the timing of extraction (capping drawings at the Personal Allowance and retaining surplus profit in the company) than from immediate full extraction, which is a genuinely different strategy than many directors were running under the old rates.

You take a salary of £12,570 (using up your full Personal Allowance) and £40,000 in dividends. Subtract the £500 allowance: £39,500 taxable. Your basic rate band runs from £12,570 to £50,270 — a further £37,700 available. All £39,500 of taxable dividends fit within that remaining basic rate band (just), taxed at 10.75%: £39,500 × 10.75% = £4,246.

Under the old 2025/26 rates (8.75%), the same £39,500 would have cost £3,456 — meaning the April 2026 rise alone added roughly £790 to this specific bill, for identical income.

Official sources & further reading: check current dividend tax rates at GOV.UK, and confirm your position with a qualified accountant. Compare against self-employed income with our self-employed mortgage guide, or browse every tool on the mortgage calculators homepage.