Additional-Rate Dividend Tax 2026/27

The 39.35% additional-rate dividend tax

The additional-rate dividend tax rate is 39.35% for 2026/27. You pay this rate on dividend income that falls in the additional-rate band — income above £125,140. If your total income (salary, dividends, savings interest and any other sources) exceeds £125,140, dividends above that level are taxed at 39.35%.

The additional-rate threshold was reduced from £150,000 to £125,140 in April 2023. If you have income between £125,140 and £150,000, you are an additional-rate taxpayer and pay 39.35% on dividends in that range. Using £150,000 as the threshold will cause you to underestimate your dividend tax.

Who pays the additional rate?

You become an additional-rate taxpayer when your total income exceeds £125,140 in a tax year. At this level, the Personal Allowance has also been fully tapered to zero (the taper begins at £100,000 and removes £1 of allowance for every £2 earned above that).

Additional-rate taxpayers pay 45% on non-savings income, 45% on savings income, and 39.35% on dividend income above the £500 allowance. Company directors drawing a salary plus dividends from their own limited company frequently encounter the additional rate when dividend income pushes total income above £125,140.

The £500 dividend allowance at the additional rate

Every UK taxpayer receives a £500 dividend allowance each tax year, regardless of their tax band. Additional-rate taxpayers also benefit from the first £500 of dividends being completely free from dividend tax. Only dividends above the £500 allowance are subject to the 39.35% rate. The £500 allowance does not reduce with higher income — it remains at £500 for all taxpayers including those above the additional-rate threshold.

The £100,000–£125,140 taper zone

Between £100,000 and £125,140, your Personal Allowance is being gradually withdrawn. For every £2 of income above £100,000, you lose £1 of Personal Allowance. This creates an effective marginal rate on non-savings income of 60% in this band.

Dividends in this range are taxed at the higher rate of 35.75%, not the additional rate. You only reach the additional rate when income exceeds £125,140. However, the interaction with the Personal Allowance taper makes income planning in this zone particularly important. Pension contributions can reduce adjusted net income and restore some or all of the Personal Allowance.

Worked example — income above £125,140

Scenario: Total income (salary + other) exceeds £125,140. Additional £10,000 of dividend income in 2026/27.

• Total income already above £125,140 — all dividends fall in the additional-rate band.
• First £500 of dividends: covered by the dividend allowance — £0 tax.
• Remaining taxable dividends: £10,000 − £500 = £9,500.
• Dividend tax: £9,500 × 39.35% = £3,738.25.
• Total dividend tax: £3,738.25.

Compare this with the basic-rate scenario: £9,500 × 10.75% = £1,021.25. The additional-rate taxpayer pays £2,717 more on the same dividend amount.

2026/27 dividend tax rates at a glance

The first £500 of dividend income is covered by the dividend allowance and is free from tax at all rates.

Planning considerations for additional-rate taxpayers

At 39.35%, the tax cost of dividends is significant. Common planning strategies include:

• ISA contributions — dividends inside a Stocks and Shares ISA are completely exempt from income tax. The annual ISA allowance is £20,000.
• Pension contributions — reducing adjusted net income below £125,140 can drop dividends into the higher-rate band (35.75%) and also restore some Personal Allowance if income is below £125,140.
• Spouse or civil partner allowances — transferring dividend-producing assets to a lower-income partner can move dividends into a lower rate band.

Official sources

• GOV.UK — Tax on dividends
• GOV.UK — Income tax rates and Personal Allowances
• GOV.UK — Changes to tax rates for dividend income