Dividend tax on shares: how much do investors pay?

The short answer: dividends from shares and funds held outside an ISA or pension are tax-free up to £500 a year. Above that, they are taxed at 10.75%, 35.75% or 39.35%, depending on your tax band. At a 4% yield, the allowance covers a portfolio of about £12,500. Inside an ISA, there is no dividend tax at all.

2026/27 dividend tax rates

Basic and higher rates rose by 2 points in April 2026. Any of your £12,570 personal allowance not used by other income also covers dividends.

Tax by portfolio size

Assuming a 4% dividend yield, held outside an ISA, with the dividends all falling in one band:

Growth funds and many global trackers yield less than 4%, often 1.5% to 2%, so the allowance covers a larger portfolio. UK income funds can yield more.

How dividends fit with your other income

Dividends are taxed last, on top of salary, pension, rental profit and savings interest. If your salary is £48,000 and you get £5,000 of dividends, the first £500 is tax-free, the next £1,770 falls in the basic band at 10.75%, and the rest is in the higher band at 35.75%. Note the dividend allowance still uses up band space.

Dividends also count towards your adjusted net income, so they can reduce your personal allowance above £100,000 and trigger the High Income Child Benefit Charge.

Tax on £3,000 of dividends at different salaries

At £49,000 the dividends straddle the higher-rate threshold, so some are taxed at 10.75% and some at 35.75%. Above £125,140, the personal allowance has gone and the rate is 39.35%.

Scotland, children and couples

• Scotland: dividend tax uses UK-wide rates and bands, not the Scottish income tax bands. Scottish salary bands still decide how much band space is left, though.
• Children: dividends from shares a parent gives a child are taxed on the parent if they come to more than £100 a year per parent. A Junior ISA avoids this.
• Couples: each partner has their own £500 allowance and bands. Moving shares to a lower-earning spouse is free of Capital Gains Tax and can cut the dividend tax, but the gift must be outright.

Funds, foreign shares and REITs

• Accumulation units: taxable in the year the dividend is reinvested. Your platform's tax report shows the amounts.
• Bond funds: pay interest distributions, taxed as savings income, not dividends.
• Foreign shares: UK tax applies, and foreign tax may be deducted first. You can often claim credit for some of it, and reduced treaty rates (for US shares, through a W-8BEN form).
• REITs: property income distributions are taxed as property income, not dividends.

Dividends and other tax rules

• Student loans: dividend income over £2,000 a year counts towards your income for student loan repayments, collected through Self Assessment.
• Child Benefit: dividends count towards the £60,000 High Income Child Benefit Charge threshold.
• Pension contributions: dividends are not "relevant earnings", so they don't raise the amount you can pay into a pension with tax relief.
• Scrip dividends: shares taken instead of cash are still taxed as dividend income at their cash value.

Reporting

• Up to £500: nothing to do.
• £500 to £10,000: tell HMRC, who can collect it through your tax code, or report on Self Assessment if you already file.
• Over £10,000: you must file a Self Assessment return.

Reducing dividend tax

• Move holdings into a Stocks and Shares ISA each year, up to £20,000 (bed and ISA), watching for Capital Gains Tax on the sale.
• Hold dividend payers in a pension.
• Share holdings with a spouse who pays a lower rate.
• Favour lower-yield growth investments outside wrappers.

Selling shares brings Capital Gains Tax instead. See Capital Gains Tax on shares and crypto. Company directors should see director salary vs dividends.

Rates for 2026/27, apply across the UK including Scotland. This is general information, not tax advice.