Dividend Tax for Basic-Rate Taxpayers 2026/27

The 8.75% basic-rate dividend tax

Basic-rate taxpayers pay 8.75% on dividend income above the £500 dividend allowance. You remain a basic-rate taxpayer as long as your total income — salary, pension, dividends and everything else — stays below the higher-rate threshold of £50,270 in 2026/27.

The 8.75% rate has applied since April 2022. Before that, basic-rate taxpayers paid 7.5% on dividends. The rate is lower than the equivalent income tax rate (20%) because dividends are paid from company profits that have already been subject to corporation tax.

The £500 dividend allowance

Every UK taxpayer gets a £500 dividend allowance each tax year. This means the first £500 of dividend income is completely free from dividend tax — regardless of which rate band you sit in or how large your total dividend income is.

The allowance was reduced from £1,000 in April 2024 and from £2,000 in April 2023. Using the old figures will cause you to underestimate your dividend tax bill. For 2026/27 it remains at £500.

How dividends sit in the tax calculation

HMRC stacks income in a specific order when working out how much tax you owe:

1. Non-savings income — salary, pension, self-employment profits. This fills the Personal Allowance first.
2. Savings income — bank interest and similar.
3. Dividend income — sits on top of everything else.

Because dividends sit on top, your salary determines how much basic-rate band remains for dividends. A salary of £30,000 leaves £20,270 of basic-rate band available before dividends start being taxed at the higher rate (£50,270 − £30,000 = £20,270).

Using the Personal Allowance against dividends

The Personal Allowance for 2026/27 is £12,570. It is applied to non-savings income first. If your salary is lower than £12,570, the unused portion of the Personal Allowance can shelter some dividend income from tax entirely.

For example, if your salary is £8,000, the remaining £4,570 of Personal Allowance (£12,570 − £8,000) can be used against the first £4,570 of dividend income, making it tax-free. The £500 dividend allowance then applies on top of that. This is especially relevant for people with part-time or low salaries alongside investment income.

Worked example

Scenario: Salary £30,000, dividends £6,000 in 2026/27.

• Salary of £30,000 fully exceeds the Personal Allowance of £12,570. No unused Personal Allowance to shelter dividends.
• Dividends sit on top of the £30,000 salary.
• First £500 of dividends: covered by the dividend allowance — £0 tax.
• Remaining taxable dividends: £6,000 − £500 = £5,500.
• Total income with dividends: £30,000 + £6,000 = £36,000 — still within the basic-rate band (£50,270).
• Dividend tax: £5,500 × 8.75% = £481.25.
• Total dividend tax: £481.25.

This assumes no other income. If you also have savings interest or rental income, those would also count towards the rate bands.

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.

Official sources

• GOV.UK — Tax on dividends
• GOV.UK — Income tax rates and Personal Allowances
• GOV.UK — Self Assessment tax returns