Dividend Tax Calculator 2026-27

UK dividends are taxed at special rates that are lower than income tax rates. For 2026/27, the tax-free dividend allowance is £500. Dividends above this are taxed at 10.75% for basic-rate payers, 35.75% at the higher rate and 39.35% at the additional rate. They are added on top of your other income to determine which band they fall into, so if your salary already uses up the basic-rate band, your dividends will be taxed at the higher rate. Any Personal Allowance your other income leaves unused covers dividends first, so someone with no other income can receive £13,070 of dividends tax-free. Dividends received within an ISA or pension are tax-free and do not count towards the allowance at all.

The gap against salary is the reason company directors bother with the split. Salary carries income tax and employee National Insurance together, so 20% plus 8% at basic rate, 40% plus 2% at higher rate, and 45% plus 2% at the top. Dividends also avoid employer NI at 15% and the 0.5% apprenticeship levy, because they are not pay. The catch is that dividends come out of profit after Corporation Tax, while salary is deductible. Per £100 of company profit, a basic-rate director keeps £62.61 as salary against £66.94 as a dividend at 25% Corporation Tax (£72.29 at the 19% small profits rate). At the higher rate the gap closes: £50.43 as salary against £48.19 to £52.04 as a dividend.

The allowance itself has been cut repeatedly. It stood at £5,000 in 2017/18, fell to £2,000 in 2018/19, then £1,000 in 2023/24, and has been £500 since April 2024, where it is now frozen. For a director drawing £40k a year in dividends, the journey from £5k to £500 costs £483.75 more tax each year, being £4,500 of newly taxable income at the 10.75% basic rate.

The usual 2026/27 structure runs a salary up to £12,570 and takes everything else as dividends. Income tax on that salary is nil because it uses the Personal Allowance, and employee NI is nil because the salary sits at the Primary Threshold. The company owes employer NI of £1,135.50 on the £7,570 above the £5,000 Secondary Threshold, which the Employment Allowance covers, so the net cost is zero. A sole-director company cannot claim that allowance, so the £1,135.50 is a real cost, but £12,570 usually still wins: the extra £7,570 of salary and the NI on it are deductible, saving £1,654 to £2,176 of Corporation Tax. A salary of £5,000 would also sit below the £6,708 Lower Earnings Limit, so the year would not count towards the State Pension.

Putting numbers to it, a director on a £12,570 salary with £40,000 of dividends pays no income tax on the salary, nothing on the first £500 of dividends, 10.75% on the next £37,200 for £3,999, and 35.75% on the final £2,300 for £822.25, giving total dividend tax of £4,821.25. The calculator handles the band-stacking, which is where hand calculations usually go astray.

Above £100k the Personal Allowance tapers by £1 for every £2 of income, creating an effective 60% marginal rate on everything between £100k and £125,140. Dividends are unusually easy to steer around this, because the company decides when they are paid. The options are keeping total income below £100k, paying dividends to a spouse where shares are jointly owned, deferring a payment into the next tax year, or making pension contributions that pull adjusted net income back under the threshold.