Dividends and the High Income Child Benefit Charge (2026/27)
If you or your partner claim Child Benefit, dividends do more than add dividend tax. They count towards the income that decides whether some or all of the Child Benefit has to be paid back, and the £500 dividend allowance does not shelter them from that test.
The High Income Child Benefit Charge applies when your adjusted net income is over £60,000: you repay 1% of the Child Benefit for every £200 above it, and all of it once you pass £80,000.1 Adjusted net income includes dividends,1 in full, with no deduction for the £500 dividend allowance.2 A director paying themselves a £12,570 salary can therefore take £47,430 of dividends before the charge starts; at £67,430 of dividends the whole benefit is repaid. If both partners are over £60,000, the higher earner pays.1
- Charge starts above £60,000 of adjusted net income; 1% of the benefit per £200; 100% from £80,000.1
- The percentage is rounded down to a whole number.3
- Adjusted net income starts from total taxable income, which includes dividends.2
- Personal pension contributions under relief at source and Gift Aid reduce it by the grossed-up amount.2
- ISA dividends are tax-free and are not part of taxable income.6
- Dividend tax 2026/27: £500 allowance, then 10.75%, 35.75% or 39.35%.5
Why the dividend allowance does not help here
The £500 dividend allowance is a 0% rate band, not a deduction from income. GOV.UK's adjusted net income calculation starts from all your taxable income, dividends included, and its only deductions are things like grossed-up pension contributions, Gift Aid and trading losses.2 So £10,000 of dividends adds £10,000 to adjusted net income, even though the first £500 of it carries no dividend tax.
The Personal Allowance does not help either. Adjusted net income is measured before Personal Allowances,1 so a director's tax-free £12,570 salary counts towards the £60,000 in full, alongside every pound of dividends.
Worked example: a director on a £12,570 salary
Dividend tax below is from our calculator engine for 2026/27; the Child Benefit percentage is the statutory formula.3
| £40,000 dividends: adjusted net income £52,570 | 0% repaid; dividend tax £4,821.25 |
| £47,430 dividends: adjusted net income £60,000 | 0% repaid; dividend tax £7,477.48 |
| £55,000 dividends: adjusted net income £67,570 | 37% repaid; dividend tax £10,183.75 |
| £67,430 dividends: adjusted net income £80,000 | 100% repaid; dividend tax £14,627.48 |
Between £60,000 and £80,000 of income, every extra £1,000 of dividends adds 5 percentage points to the share of Child Benefit repaid, on top of 35.75% dividend tax once the basic-rate band is used.
Worked example: a salary plus a share portfolio
An employee earning £52,000 receives £10,000 of dividends from shares held outside an ISA. The salary alone is under £60,000, but adjusted net income is £62,000, so 10% of the Child Benefit is repaid. The dividend tax on the £10,000 is £3,396.25 (our engine), all of it above the £500 allowance at 35.75%, because the salary already reaches the higher-rate band.
Held in a Stocks and Shares ISA instead, the same dividends would be neither taxed nor counted, because ISA income is not taxable income.6 Moving holdings into an ISA is limited by the £20,000 annual subscription, and selling shares to move them can create a capital gain.
Bringing adjusted net income back under £60,000
A personal pension contribution under relief at source reduces adjusted net income by the grossed-up amount: £1.25 for every £1 you pay.2 A director at £80,000 who makes a £12,570 gross contribution brings adjusted net income down to £67,430, so the charge falls from 100% to 37%. The same contribution raises the basic-rate limit by £12,570, so £12,570 more of the dividends is taxed at 10.75% instead of 35.75%: the dividend tax falls from £14,627.48 to £11,484.97 (our engine).
The limit is earnings, not dividends. Tax relief on personal contributions is capped at 100% of relevant UK earnings, and dividends are not relevant earnings,4 which is why the example stops at the director's salary. A contribution paid by the company is not the director's income at all; the director simply takes less in dividends, which is the other way to stay under £60,000.
Paying the charge
The charge can be paid through PAYE or Self Assessment. You must use Self Assessment if you need a tax return for another reason, as anyone with more than £10,000 of dividends does.1 Because the charge depends on the year's final dividend figure, a director deciding a March dividend should check where adjusted net income will land before the board minute is signed.
Work out the dividend tax side
Enter your salary and dividends to see the dividend tax for 2026/27.
Open dividend tax calculatorRelated pages
Sources & references
Every headline figure in this guide is drawn from the official HMRC and GOV.UK sources below and reflects the confirmed 2026/27 rates. Each link opens the relevant official page in a new tab.
- High Income Child Benefit Tax Charge ↗ https://www.gov.uk/child-benefit-tax-charge
- Adjusted net income ↗ https://www.gov.uk/guidance/adjusted-net-income
- Income Tax (Earnings and Pensions) Act 2003, section 681C: amount of the charge ↗ https://www.legislation.gov.uk/ukpga/2003/1/section/681C
- HMRC Pensions Tax Manual PTM044100: tax relief for members, relevant UK earnings ↗ https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100
- Tax on dividends ↗ https://www.gov.uk/tax-on-dividends
- Individual Savings Accounts (ISAs) ↗ https://www.gov.uk/individual-savings-accounts
Frequently asked questions
Do dividends count for the Child Benefit charge?
How much can a director take in dividends before the Child Benefit charge starts?
Who pays the charge if my partner claims the Child Benefit?
Do ISA dividends count towards the £60,000?
Can a pension contribution reduce the Child Benefit charge?
Disclaimer: General information about UK tax for 2026/27, not personal tax advice. Figures assume England, Wales or Northern Ireland income tax bands unless stated.