Last updated: 6 April 2026
From 6 April 2026, UK dividend tax rates are rising by 2 percentage points at the basic and higher rates. If you receive dividends on shares or funds held outside an ISA or pension, your tax bill is going up. Here is what has changed, who is affected, and what you can do about it.
Disclaimer: This is not financial advice. Tax rules can change, and their effects vary based on individual circumstances. Always do your own research or speak to a qualified tax adviser or accountant before making decisions.
What is changing?
The Autumn Budget 2025 confirmed a 2 percentage point increase to the dividend tax rise 2026 rates. The changes, published by GOV.UK, take effect from 6 April 2026 and apply across the UK (England, Wales, Scotland, and Northern Ireland).
| Tax band | 2025/26 rate | 2026/27 rate | Change |
|---|---|---|---|
| Basic rate (£12,571 to £50,270) | 8.75% | 10.75% | +2% |
| Higher rate (£50,271 to £125,140) | 33.75% | 35.75% | +2% |
| Additional rate (above £125,140) | 39.35% | 39.35% | No change |
The dividend allowance remains at £500. In other words, you can still receive up to £500 in dividends each year without paying any tax. Beyond that, the new rates kick in.
How much more will you pay?
The increase is 2p in every pound of taxable dividend income. That might sound small, but it adds up quickly depending on how much you receive.
Worked examples
Basic-rate taxpayer receiving £5,000 in dividends: After the £500 allowance, £4,500 is taxable. In 2025/26, that costs £393.75. From April 2026, it costs £483.75. That is an extra £90 per year.
Higher-rate taxpayer receiving £20,000 in dividends: After the £500 allowance, £19,500 is taxable. In 2025/26, the tax is £6,581.25. From April 2026, it rises to £6,971.25. That is an extra £390 per year.
For company directors who extract profits primarily through dividends, the impact is more significant. A director taking £50,000 in dividends at the higher rate will pay roughly £1,000 more per year.
Who is affected?
You are affected if you receive dividend income above £500 outside of an ISA or pension. This includes:
- Company directors and shareholders who pay themselves through dividends.
- Private investors holding shares or equity funds in a general investment account (GIA).
- Anyone receiving dividends from employee share schemes outside of tax-advantaged wrappers.
According to HMRC estimates, around 3.7 million people now pay dividend tax in the UK, more than double the figure from 2021/22. The combination of a shrinking allowance (down from £5,000 in 2017 to £500 today) and rising rates has dragged millions of smaller investors into the net for the first time.
How ISAs protect you from dividend tax
Dividends received inside a Stocks and Shares ISA are completely tax-free. No dividend tax, no capital gains tax, and no need to declare them on a tax return. This has always been the case, but the dividend tax rise 2026 makes the ISA wrapper significantly more valuable than before.
If you hold dividend-paying investments outside an ISA, moving them inside the wrapper shields all future dividends from the higher rates. The process is sometimes called "bed and ISA": you sell the holding in your GIA, then repurchase it inside your ISA. Any gain on the sale may be subject to capital gains tax, but the long-term saving on dividend tax can outweigh the one-off cost.
For a comparison of the best Stocks and Shares ISA options right now, see our best investment ISA 2026 guide. If you are comparing fees across platforms, our cheapest investment app UK: FX fees compared guide breaks down the real costs.
Pensions also shelter dividends
Like ISAs, dividends received inside a self-invested personal pension (SIPP) are tax-free. If you are a company director, making employer pension contributions instead of taking dividends can be doubly efficient. Employer pension contributions are deductible from company profits (reducing corporation tax) and are not subject to employer National Insurance. The money grows tax-free inside the pension, though you will pay income tax when you eventually draw it in retirement.
Both Freetrade and J.P. Morgan Personal Investing offer SIPPs alongside their ISAs. The pension annual allowance is £60,000 for 2026/27.
What else is changing alongside dividends?
The dividend tax rise sits within a broader set of changes from the Autumn Budget 2025. From April 2027, savings tax rates rise by 2% across all bands, and the Cash ISA allowance drops to £12,000 for under-65s. For a complete overview of everything changing, see our tax year end checklist.
FAQs: dividend tax rise 2026
When does the dividend tax rise take effect?
From 6 April 2026, the start of the 2026/27 tax year. The new rates apply to all dividend income received on or after that date.
Does the dividend allowance change?
No. The tax-free dividend allowance remains at £500 for 2026/27. However, the allowance has fallen sharply in recent years, from £5,000 in 2017 to £500 today, which means more people are paying dividend tax than ever before.
Are ISA dividends affected?
No. Dividends received inside a Stocks and Shares ISA or pension remain completely tax-free. Only dividends held outside tax-advantaged wrappers are subject to the new rates.
What about the additional rate?
The additional rate for dividends (39.35%) is not changing. Only the basic and higher rates are increasing by 2 percentage points.
Should I sell my shares to avoid paying more tax?
Not necessarily. Selling triggers potential capital gains tax. The more common approach is to move dividend-paying holdings into an ISA (bed and ISA) or pension. The right strategy depends on your circumstances, so consider speaking to a tax adviser if large sums are involved.
Does this affect Scottish taxpayers differently?
No. Dividend tax rates are set by the UK Parliament and apply uniformly across England, Wales, Scotland, and Northern Ireland. They are separate from Scottish income tax bands on employment income.
This article is for informational purposes only and does not constitute financial or tax advice. Tax rules can change. Always check the latest position on GOV.UK or speak to a qualified adviser.
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