When Dividend Tax applies
Who this guide is for: For shareholders receiving dividends from a personal company or other shareholdings — focused on personal Dividend Tax, not a full company extraction overview.
- Step 1Company earns profit
- Step 2Corporation Tax
- Step 3Post-tax dividend capacity
- Step 4Dividend received personally
- Step 5Personal Dividend Tax
Dividend Tax is charged on dividend income you receive as an individual. It is separate from Corporation Tax paid by the company that distributed the dividend.
Company capacity before personal tax
- Step 1Company profit
- Step 2Salary & employer costs
Separate company cost branches
- Branch AEmployer National Insurance
- Branch BEmployer pension
- Step 3Corporation Tax
- Step 4Post-tax reserves
- Step 5Dividends (highlighted in this guide)
- Step 6Personal tax
- Step 7Take-home cash
Employer National Insurance and employer pension contributions usually reduce taxable company profit before Corporation Tax. Dividends come later, from post-tax distributable reserves, and personal tax is calculated on what the director receives.
Before personal Dividend Tax matters, the company needs distributable reserves and enough cash to pay. Cash alone is not enough. How Corporation Tax shapes post-tax profit is explained in Corporation Tax Explained; the salary-versus-dividend overview is in Director Salary and Dividends Explained.
2026/27 dividend rates
| Item | Amount / rate |
|---|---|
| Dividend allowance (0% band) | £500.00 |
| Ordinary dividend rate | 10.75% |
| Upper dividend rate | 35.75% |
| Additional dividend rate | 39.35% |
Worked examples
Dividends entirely within the allowance
Tax year 2026/27 · England · non-savings income £12,570.00 · dividends £500.00 · no pension · no student loan. Shared dividend-tax engine.
| Dividend income | £500.00 |
|---|---|
| Dividend allowance used | £500.00 |
| Dividend Tax (key figure) | £0.00 |
Dividends within the basic-rate band
Same assumptions · dividends £10,000.00.
| Dividend income | £10,000.00 |
|---|---|
| Ordinary-rate slice | £9,500.00 |
| Ordinary-rate Dividend Tax (10.75%) | £1,021.25 |
| Total Dividend Tax (key figure) | £1,021.25 |
Dividends crossing into the higher-rate band
Non-savings income £40,000.00 · dividends £20,000.00.
| Non-savings Income Tax (for context) | £5,486.00 |
|---|---|
| Ordinary-rate Dividend Tax (10.75%) | £1,050.28 |
| Upper-rate Dividend Tax (35.75%) | £3,478.48 |
| Total Dividend Tax (key figure) | £4,528.75 |
Company and investment dividends share one allowance
Non-savings £12,570.00 · company dividends £5,000.00 · other dividends £8,000.00.
| Total dividend income | £13,000.00 |
|---|---|
| Total Dividend Tax (key figure) | £1,343.75 |
All taxable dividends share the same allowance. ISA dividends are normally outside this charge.
Personal Allowance taper with dividends in the mix
Non-savings £90,000.00 · dividends £20,000.00 · adjusted net income £110,000.00.
| Personal Allowance after taper | £7,570.00 |
|---|---|
| Dividend Tax (key figure) | £6,971.25 |
Dividends count toward adjusted net income, so they can contribute to Personal Allowance taper even though they use dividend rates. See Income Tax Bands Explained for the £1-for-£2 taper rules.
Estimate Dividend Tax alongside salary and Corporation Tax Use the Director Salary and Dividend Calculator
Where to go next
- Director Salary and Dividends Explained — salary, dividends and reserves in one overview.
- Corporation Tax Explained — company tax before dividend capacity.
- Income Tax Bands Explained — including Personal Allowance taper.
- Director Salary and Dividend Calculator — model Dividend Tax with salary and Corporation Tax.