How dividends are taxed on top of your other income
Dividends are treated as the top slice of your income, so the rate they attract depends on everything else you earn first. The £500 dividend allowance is a nil-rate band, not an exemption.
Figures stated for the 2026/27 UK tax year. Content last checked against official sources on .
What this calculator does
- Works out the Income Tax due on dividend income for 2026/27.
- Applies the £500 dividend allowance and the dividend rates of 10.75%, 35.75% and 39.35%.
- Shows how much of your dividend income falls into each band once other income is taken into account.
- Also reports the tax on your other income, so the two can be seen together.
How the calculation works
Dividends sit at the top of the income stack. The calculator first applies your Personal Allowance to your other income and taxes that in the usual bands, which establishes how much band space remains. Your dividends are then dropped into whatever space is left. The first £500 of dividends is covered by the dividend allowance — but the allowance is a nil-rate band, not an exemption, which means it still consumes band space rather than pushing later dividends into a cheaper band. Whatever remains of the basic rate band is charged at the 10.75% dividend basic rate, the higher rate band at 35.75%, and anything above at 39.35%. This top-slicing is why the same £12,000 of dividends can attract very different amounts of tax depending on the salary underneath it, and why increasing your salary can raise the tax on dividends you have not changed.
The rule
Dividend tax = 10.75% × (dividends in remaining basic band, after the £500 allowance) + 35.75% × (dividends in the higher band) + 39.35% × (dividends above).
Step by step
- Apply the Personal Allowance to your other income and tax it in the usual bands.
- Work out how much of each band remains unused.
- Place dividends on top, using the £500 allowance first — it occupies band space at a nil rate.
- Charge the remaining dividends at the dividend rate for each band they fall into.
Worked example
Marcus takes a £40,000 salary from his company and £12,000 in dividends, and wants to know the tax on the dividends.
What was entered
| Dividend income | £12,000 |
|---|---|
| Other income | £40,000 |
| Jurisdiction | England/Wales/NI |
The arithmetic
- The £12,570 Personal Allowance is used against the £40,000 of other income, leaving £27,430 taxable at 20%: £5,486.
- The basic rate band covers £37,700 of taxable income, so £37,700 − £27,430 = £10,270 of band space remains.
- The first £500 of dividends uses the dividend allowance at a nil rate, but still occupies band space.
- That leaves £9,770 of dividends inside the basic band, charged at 10.75%.
- The remaining £1,730 of dividends spills into the higher band at 35.75%.
- Total dividend tax is £1,668.75, an effective 13.9% across the whole £12,000.
What the calculator returns
| Dividend allowance used | £500.00 |
|---|---|
| Dividends taxed at the basic rate | £9,770.00 |
| Dividends taxed at the higher rate | £1,730.00 |
| Dividend tax | £1,668.75 |
| Dividends after tax | £10,331.25 |
Key assumptions
- Dividends are treated as the top slice of income, which is the statutory ordering.
- The dividend rates are the same across the UK; only the tax on your other income varies by jurisdiction.
- All dividends are UK dividends received in the same tax year.
Limitations
- Dividends inside an ISA or a pension are not taxable and should not be entered here.
- Foreign dividends, dividend income within a trust, and stock dividends follow different rules.
- The calculator does not model the interaction with the Personal Savings Allowance or the starting rate for savings.
- It estimates Income Tax only; it is not a Self Assessment computation.
Common questions
Why did my dividend tax rise when my salary went up, even though the dividends did not change?
Is the £500 dividend allowance tax-free income?
Do dividends inside an ISA count?
Do Scottish taxpayers pay different dividend rates?
Related calculators
- General Investment Account Tax Calculator — Dividends, gains and interest inside a general investment account, assessed together.
- UK Income Tax Calculator — Work out the tax on the other income that determines which bands your dividends land in.
- Capital Gains Tax Calculator — Capital gains use their own allowance and rates alongside dividends.
Official sources
Every figure in this guide was checked against the sources below. Where a source could not confirm a figure, it is marked as requiring verification rather than presented as settled.
- Tax on dividends — GOV.UK (2026 to 2027)Dividend allowance £500; dividend rates 10.75% basic, 35.75% higher, 39.35% additional
- Income Tax rates and Personal Allowances — GOV.UK (6 April 2026 to 5 April 2027)Personal Allowance £12,570; basic 20% to £50,270; higher 40% to £125,140; additional 45% above; taper from £100,000
- Income Tax Act 2007 — legislation.gov.ukStatutory basis for the Income Tax charge, rates and allowances