From 6 April 2026, dividend tax rates rose by two percentage points across the basic and higher rate bands. The dividend allowance stays at £500. If you hold dividend-paying shares outside a tax-protected wrapper (ISA, SIPP, or company pension), you are paying more tax on the same income than you were a year ago. And there is another 2pp increase in the pipeline, this time on savings income, from 6 April 2027.
Here is what has changed, what it means in pounds and pence for typical investors, and how the dividend and savings tax rises stack against the still-tax-free wrappers that most retail investors have access to.
The short version
- Dividend tax rates rose 2pp on 6 April 2026 in the basic and higher rate bands:
- Basic rate: 8.75% to 10.75%
- Higher rate: 33.75% to 35.75%
- Additional rate: 39.35% (unchanged)
- The dividend allowance remains £500 (the amount of dividend income each individual can receive tax-free before the dividend tax rates kick in).
- Savings income tax rates will rise by 2pp from 6 April 2027:
- Basic rate: 20% to 22%
- Higher rate: 40% to 42%
- Additional rate: 45% to 47% (unchanged in the proposals as currently drafted, but the savings tax change reframes the headline tax bands)
- The personal savings allowance (£1,000 for basic rate, £500 for higher rate) is unchanged at this stage.
- ISAs (£20,000 annual subscription limit, with the £12,000 under-65 cash ISA cap arriving in April 2027) remain fully outside both dividend and savings tax.
- SIPPs and workplace pensions also remain outside both, though pension income at withdrawal is taxable as earned income.
What changed on 6 April 2026, in detail
Dividend income from UK and overseas company shares (and from equity-based collective investments held outside a wrapper) has its own tax treatment, separate from earned income and savings interest. The structure is:
- The first £500 of dividend income each tax year is covered by the dividend allowance. No tax is due on it.
- Dividend income above £500 is taxed at the dividend rate corresponding to the band of your overall income (after personal allowance and other deductions).
The new rates (effective from 6 April 2026):
- Basic rate dividend tax: 10.75%. Applies where your total taxable income (including dividends) sits within the basic rate band (currently £12,570 to £50,270 in England, Wales, and Northern Ireland).
- Higher rate dividend tax: 35.75%. Applies where your total taxable income sits within the higher rate band (£50,271 to £125,140).
- Additional rate dividend tax: 39.35%. Applies where your total taxable income is above £125,140.
The 2pp rise on basic and higher rate dividend tax is legislated via the Finance Act 2026, which received Royal Assent in February. The change is law, not a consultation.
What this looks like in cash terms
Example 1: Basic rate taxpayer with a small dividend portfolio
You earn £35,000 from employment and receive £2,000 in dividends from a UK shares portfolio held in a general investment account (GIA), not an ISA.
- Dividend allowance covers the first £500: tax-free.
- The remaining £1,500 of dividends is taxed at the basic rate dividend rate.
- 2025/26 tax (8.75%): £131.25 dividend tax.
- 2026/27 tax (10.75%): £161.25 dividend tax.
- Extra tax per year: £30.
Example 2: Higher rate taxpayer with a larger portfolio
You earn £75,000 from employment and receive £5,000 in dividends from a GIA.
- Dividend allowance covers the first £500: tax-free.
- The remaining £4,500 is taxed at higher rate dividend rate.
- 2025/26 tax (33.75%): £1,518.75 dividend tax.
- 2026/27 tax (35.75%): £1,608.75 dividend tax.
- Extra tax per year: £90.
Example 3: Same portfolios, but inside ISAs
If both investors had held the same dividend-paying shares inside Stocks and Shares ISAs (within the £20,000 annual subscription limit), their dividend tax bill in both 2025/26 and 2026/27 would be £0. ISA dividends are not subject to dividend tax, and the dividend allowance does not apply because ISA dividends do not enter the calculation at all.
For high-earners with large GIA dividend portfolios, the gap between in-ISA and out-of-ISA returns has now widened by 2pp on the basic-rate slice and 2pp on the higher-rate slice. This is the actuarial story behind the headline: the value of using a tax wrapper has gone up.
The 2027 savings tax change in preview
From 6 April 2027, savings income tax rates will rise by 2pp. Savings income covers interest from bank and building society accounts, NS&I savings products, corporate bond interest, and the interest element of some investment funds. The rates as currently legislated:
- Starting rate: 0%. Unchanged. The starting rate of tax on savings income applies to people whose non-savings income (mainly earnings and pensions) is below the personal allowance plus the £5,000 starting rate band. It is a feature that helps low-income savers but does not affect most working-age earners.
- Basic rate: 20% to 22%.
- Higher rate: 40% to 42%.
- Additional rate: 45% to 47% (subject to confirmation in the relevant Finance Bill; the headline 2pp uplift applies to basic and higher rate definitively).
The personal savings allowance (PSA) remains the protection that most ordinary savers use:
- Basic rate taxpayer: £1,000 of savings interest each year tax-free.
- Higher rate taxpayer: £500 of savings interest each year tax-free.
- Additional rate taxpayer: £0 (no PSA).
So a basic rate saver earning £900 of interest in 2027/28 still pays no tax on it; a basic rate saver earning £1,500 of interest pays 22% on the £500 above the PSA, equalling £110 (compared with £100 under 2026/27 rates).
Where the wrappers stand by 2027/28
The tax-efficient wrappers retail investors can use, with their 2027/28 position:
Stocks and Shares ISA
- Annual subscription limit: £20,000 across all ISA types combined.
- Dividends from shares and funds held inside: not subject to dividend tax.
- Interest from bonds and cash funds held inside: not subject to savings tax.
- Capital gains on assets sold: not subject to capital gains tax.
- Withdrawals: tax-free.
Cash ISA
- Annual subscription limit: £20,000 in 2026/27, but a new £12,000 cap for under-65s applies from 6 April 2027.
- Interest: not subject to savings tax.
- Withdrawals: tax-free.
- See our existing guide for the cap detail: Cash ISA Cap 2027: the £12,000 under-65 saver’s guide.
SIPP and workplace pension
- Contributions: receive tax relief at your marginal rate (basic 20%, higher 40%, additional 45% in 2026/27; the headline rates do not change, but the comparison to a GIA dividend has shifted with the dividend tax rise).
- Dividends and interest inside: not subject to dividend or savings tax.
- Withdrawals: 25% tax-free (up to the lump sum allowance), the remainder taxed as earned income.
- The pension wrapper remains the most tax-efficient route for long-term retirement saving, particularly for higher and additional rate taxpayers.
General Investment Account (GIA)
- No subscription limit.
- Dividends: subject to dividend tax (10.75% / 35.75% / 39.35% from 2026/27).
- Interest: subject to savings tax (22% / 42% / 47% from 2027/28).
- Capital gains: subject to capital gains tax (typically 18% / 24% on shares above the £3,000 CGT annual exempt amount).
What this means in practice for typical retail investors
A few observations that follow from the changes, none of which constitute personalised advice:
- The dividend allowance (£500) and personal savings allowance (£500 to £1,000) protect small amounts of income. For most modest investors, the tax rise is mainly about the bit above those thresholds.
- For investors who routinely max out an ISA each year (£20,000 in 2026/27), the dividend and savings tax changes do not affect that core portfolio at all.
- For investors who hold significant assets in a GIA because they have exceeded their ISA allowance, the gap between ISA returns and GIA returns has widened. The Stocks and Shares ISA looks comparatively more valuable than it did a year ago.
- For higher-rate taxpayers with employer pension contribution matching, pensions remain the most tax-efficient long-term savings vehicle by a wide margin, even with the dividend tax change.
- The change increases the marginal value of “Bed and ISA” planning (selling assets in a GIA and immediately re-buying them within an ISA, using the annual ISA subscription) for investors who have ISA allowance remaining and want to move dividend-paying assets into a wrapper.
What about company directors paying themselves in dividends?
Small-company directors who pay themselves a low salary plus dividends are one of the populations most affected by the dividend tax rise. The classic structure of a £12,570 salary (covered by the personal allowance) plus dividends up to the basic rate threshold has become incrementally more expensive:
For a director taking £12,570 salary and £37,700 in dividends in 2026/27:
- Personal allowance covers the £12,570 salary.
- Dividend allowance covers £500 of dividends.
- £37,200 of dividends is taxed at 10.75% (the new basic-rate dividend tax rate). That is £3,999 of dividend tax.
- Under 2025/26 rates, the same income would have generated £3,255 of dividend tax (£37,200 at 8.75%).
- Extra tax in 2026/27: £744 per year.
Once you add the broader picture (corporation tax of 19% to 25% on the company’s profits before dividends are paid, employer NI on any salary above the secondary threshold, the salary-sacrifice-cap change in the NIC Act 2026 from April 2029), small-company tax planning is materially more complex than it was three years ago. A qualified accountant can run the specific maths for your situation.
FAQ
Do the changes apply to dividends from overseas shares?
Yes, the UK dividend tax rates apply to overseas dividends as well as UK-source dividends, subject to any tax treaty relief for foreign withholding tax already paid. The country of source may apply its own withholding tax, often around 15% under the UK’s tax treaty network.
What about dividends from REITs or property income distributions?
UK Real Estate Investment Trusts (REITs) distribute their property income as Property Income Distributions (PIDs), which are taxed differently from ordinary share dividends. PIDs are typically subject to income tax at your marginal rate (the new 2026/27 income tax bands), with 20% withholding tax deducted at source. The dividend tax rates do not apply to PIDs.
Is it worth switching from a GIA to an ISA now?
That depends on your individual circumstances: ISA allowance available, the size of the GIA holding, current CGT position on any gains crystallised in the switch, and your wider financial plan. The mechanical “Bed and ISA” transaction is straightforward; the case for doing it is more individual. A regulated financial adviser can review the specific numbers for you. This site does not provide personalised investment advice.
Will the personal allowance change?
The personal allowance (£12,570) and the higher rate threshold are currently frozen until at least April 2028. The freeze pushes more taxpayers into higher tax brackets each year as wages grow, a phenomenon known as fiscal drag. The 2pp dividend and savings tax rises compound this effect for investors with portfolio income above the allowances.
Are the changes a tax rise specifically targeted at investors?
The dividend tax rates have been adjusted several times in the last decade, often in conjunction with broader fiscal policy decisions. The 2026 rise is part of the package the government legislated in the autumn 2025 Budget. Pension Plain and Savvy Investor Guide are apolitical and do not advocate for or against particular fiscal policies; this article describes what the law says.
Where to go from here
- HMRC dividend tax overview: gov.uk – tax on dividends
- HMRC savings tax overview: gov.uk – tax-free interest
- HMRC policy paper on the 2026 changes: gov.uk – changes to tax rates for property, savings, dividend income
- MoneyHelper on ISAs: moneyhelper.org.uk
This article explains the 2026/27 dividend tax rates and the 2027/28 savings tax preview as of 13 May 2026. It is general information, not personal advice. Your specific tax position depends on your individual circumstances; a qualified accountant or financial adviser can give a personal recommendation.
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