Dividend Tax for Basic-Rate Taxpayers 2026/27
If your total income stays under £50,270, you're a basic-rate taxpayer, and dividends above the £500 allowance are taxed at just 10.75%1 for 2026/27. That's the lowest dividend rate there is. This guide shows how it's worked out and where the £500 allowance really goes.
- Basic-rate dividends are taxed at 10.75%1 — far below the 20% you'd pay on salary.
- The first £500 of dividends is tax-free1; the allowance was £1,000 before April 2024, so old figures overstate the tax-free slice.
- Any unused Personal Allowance (£12,570)2 shelters dividends before the £500 allowance even starts.
- Dividends are the top slice of income, so your salary decides how much basic-rate band is left for them.
- You stay basic-rate only while total income — salary, pension and dividends combined — stays under £50,2702.
The 10.75% basic-rate dividend tax
Basic-rate taxpayers pay 10.75% on dividends above the £500 allowance in 2026/27. You stay a basic-rate taxpayer as long as total income — salary, pension, dividends, everything — stays below £50,270.
The rate is lower than income tax (20%) because dividends come from company profits that have already been taxed.
The £500 dividend allowance
Every UK taxpayer gets a £500 dividend allowance. The first £500 of dividend income each year is free from dividend tax regardless of your rate band or how large your total dividends are.
The allowance was £1,000 in 2023/24 and £2,000 before that. Using the old figures will understate your tax bill. For 2026/27 it is £500.
How dividends sit in the tax calculation
HMRC stacks income in a fixed order:
- Non-savings income — salary, pension, self-employment. Fills the Personal Allowance first.
- Savings income — bank interest and similar.
- Dividend income — sits on top.
Dividends sit at the top, so your salary determines how much basic-rate band is left for them. A salary of £30,000 leaves £20,270 of basic-rate band before the higher rate kicks in (£50,270 − £30,000 = £20,270).
Using the Personal Allowance against dividends
The Personal Allowance is £12,570 and goes against non-savings income first. If your salary is below £12,570, the unused portion can shelter some dividend income entirely.
Say your salary is £8,000. The remaining £4,570 of Personal Allowance (£12,570 − £8,000) covers the first £4,570 of dividends tax-free. The £500 dividend allowance then applies on top of that.
Worked example — £30,000 salary and £5,000 dividends
Salary £30,000, dividends £5,000, no other income, 2026/27. The salary is well above the Personal Allowance, so there's nothing spare to shelter the dividends. The whole lot stays inside the basic-rate band, so it's a clean 10.75% job.
| Salary (uses Personal Allowance and part of the basic band) | £30,000 |
| Dividends | £5,000 |
| Dividend allowance (0%) | £500 |
| Taxable dividends (£5,000 − £500) | £4,500 |
| Total income £35,000 — still under £50,270, so all basic rate | — |
| £4,500 taxed at 10.75% | £483.75 |
| Total dividend tax | £483.75 |
Assumes no savings interest or rental income — those would fill the bands before dividends. Here the allowance sits in the basic band too, but since every taxable pound is basic-rate anyway, it makes no difference to the final figure. The allowance only changes the answer when dividends straddle the £50,270 line.
2026/27 dividend tax rates at a glance
| Band | Total income | Dividend rate |
|---|---|---|
| Basic rate | Up to £50,270 | 10.75% |
| Higher rate | £50,271 – £125,140 | 35.75% |
| Additional rate | Above £125,140 | 39.35% |
The first £500 of dividend income is covered by the dividend allowance1 and is taxed at 0% — but it still takes up room in whichever band it lands in.