Updated for 2026/27 · Based on HMRC Rates · Confirmed Statutory Values

Dividend Tax Calculator 2026/27 UK | Tax on Company Dividends

Updated for 2026/27 tax year: Incorporating statutory dividend rates effective 6 April 2026 — last verified 4 October 2026. Read our calculation methodology →

For 2026/27, the first £500 of your dividend income is tax-free. Above that, you pay 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate) depending on where dividends land in your overall income stack. On £20,000 salary and £5,000 dividends, after your £500 allowance you pay 10.75% on £4,500 — that is £483.75 in dividend tax for the year.

Key 2026/27 Dividend Tax Facts

  • Dividend Allowance: £500 tax-free for all UK taxpayers (effective 6 April 2026).
  • Ordinary Rate: 10.75% on dividends in the basic rate band (above £12,570 up to £50,270 combined income).
  • Upper Rate: 35.75% on dividends in the higher rate band (£50,270 to £125,140).
  • Additional Rate: 39.35% on dividends above £125,140 combined income.
  • No National Insurance: Dividends attract zero NI contributions — unlike salary.
  • 60% Trap Zone: If total income is between £100,000 and £125,140, effective marginal rate hits 60%.

How Dividend Tax Works in 2026/27

Dividend income sits on top of everything else. Your salary, rental income, and pension all get stacked first against your £12,570 Personal Allowance and the basic rate band. Dividends land on whatever remains. A director on £45,000 salary with £10,000 in dividends has most of their salary already using the basic rate band, so £4,730 of those dividends spill into the higher rate at 35.75%.

If you run a limited company, compare full extraction scenarios using our Contractor Calculator and Income Tax Calculator.

How Much Tax on £60,000 in Dividends?

This is one of the most searched questions on this site. Assuming a director taking a salary of £12,570 (using the full Personal Allowance) and £60,000 in dividends:

  • First £500 of dividends: tax-free (Dividend Allowance — this also occupies £500 of the basic rate band)
  • Next £37,200 at 10.75% = £3,999.00 (the remaining basic rate band after the £500 allowance)
  • Remaining £22,300 at 35.75% = £7,972.25
  • Total dividend tax: £11,971.25

Enter your own figures in the calculator above to get the exact breakdown for your income level.

Dividends vs Salary: Which Is Better?

For most limited company directors, a combination of a small salary (around £12,570) plus dividends is the most tax-efficient approach. Salary up to the Personal Allowance is income-tax-free and triggers no employer NI. Dividends above that avoid NI entirely but face dividend tax instead. The trade-off: dividends do not build qualifying years for the State Pension and cannot be used for pension contributions. If retirement savings matter to you, a slightly higher salary may be worth the NI cost.

The 60% Tax Trap Explained

Between £100,000 and £125,140 of total income, HMRC withdraws your Personal Allowance — £1 for every £2 earned. That withdrawal creates an effective 60% marginal rate: 40% Income Tax on the income itself, plus a 20% effective rate on the lost allowance. Dividends in this band are taxed at the upper rate (35.75%) and also trigger the same allowance withdrawal, so the effective rate can exceed 55% on dividends in this zone. Pension contributions are the cleanest way out: they reduce your adjusted net income and push you back below £100,000.

Frequently Asked Questions

How much tax will I pay on dividend income?

The first £500 is tax-free. After that: 10.75% in the basic rate band, 35.75% in the higher rate band, and 39.35% above £125,140. Your non-dividend income fills the bands first; dividends occupy whatever is left.

How much tax would I pay on £60,000 dividends?

On £60,000 dividends with a £12,570 salary: £500 is tax-free (Dividend Allowance, which also uses up £500 of the basic rate band). The next £37,200 is taxed at 10.75% (£3,999.00), and the remaining £22,300 at 35.75% (£7,972.25). Total: £11,971.25. Use the calculator above for your exact figure.

Is it better to take dividends or salary in the UK?

For limited company directors, the standard approach is a salary up to £12,570 (no income tax, minimal NI) and the rest as dividends (no NI, lower tax rates in the basic band). The catch: dividends do not count toward the State Pension or pension contributions, so a higher salary might be worth it if you are building retirement savings.

How to avoid tax on dividends in the UK?

Legitimately: hold investments in a Stocks and Shares ISA (dividends are completely tax-free inside an ISA), use your £500 annual Dividend Allowance, consider transferring shares to a spouse on a lower income to use their allowance and basic rate band, or redirect company profits into a pension. These are standard HMRC-recognised planning strategies — not evasion.

Do dividends count as earned income?

No. HMRC classifies dividends as investment income. They attract no National Insurance and do not count toward qualifying years for the State Pension or your pension annual allowance.

How does HMRC know my dividend income?

If dividends exceed £500 in a tax year, you must report them on a Self Assessment return. HMRC also receives data feeds from listed companies and investment platforms, so undisclosed dividends get picked up routinely. Company directors must file Self Assessment regardless of the amount.

Do I pay tax on UK dividends if I am non-resident?

UK non-residents generally do not pay UK Income Tax on UK company dividends, but it depends on your residence status and any double tax treaty between the UK and your home country. Some treaties allow a small withholding at source. Check the relevant treaty and get advice if you receive significant UK dividend income while living abroad.

Do you pay tax on reinvested dividends in the UK?

Yes. HMRC treats reinvested dividends (DRIPs) exactly the same as cash dividends. The fact that the money stayed in the account does not exempt it. The reinvested amount does increase your cost base for Capital Gains Tax when you eventually sell the shares.

What is the 60% tax trap in the UK and how can I avoid it?

When total income falls between £100,000 and £125,140, the Personal Allowance is withdrawn at £1 for every £2 over £100,000. The result is an effective 60% marginal tax rate on income in this band. The cleanest fix is pension contributions: money paid into a pension reduces adjusted net income and can bring you back below £100,000, restoring your full allowance. Directors might also consider deferring dividends to another tax year.

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