How will the 2% increase in the tax rate affect my dividend income?

By Lucy Metcalf

Tax Partner

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It was announced in the Budget on 26 November 2025 that, from 6 April 2026, an extra 2% Income Tax will be due on any taxable dividend income that you receive.

The first thing to note is that everybody has an annual tax free Dividend Allowance (DA) of £500.

This means that if, in a tax year, your dividend income is less than £500, you will not have any Income Tax to pay on your dividends.

If you receive dividends that exceed your DA, then the Income Tax rates in place now, and from 6 April 2026 are as follows:

	Rates in place up to 5 April 2026	Rates in place from 6 April 2026
Dividend income that falls in the basic rate tax band	8.75%	10.75%
Dividend income that falls in the higher rate tax band	33.75%	35.75%
Dividend income that falls in the additional rate tax band	39.35%	39.35% (no change)

So, for example, if you are a basic rate taxpayer and currently receive dividend income of £30,000, your Income Tax liability on this would be as follows:

£500 x 0% =	£0	The first £500 is covered by the tax-free DA
£29,500 x 8.75% =	£2,581	The balance is taxable at 8.75%
Total	£2,581

From 6 April 2026, the Income Tax liability would be:

£500 x 0% =	£0	The first £500 is still covered by the tax-free DA
£29,500 x 10.75% =	£3,172	The balance is taxable at 10.75%
Total	£3,172

So, the new tax rates from 6 April 2026 onwards would see a basic rate taxpayer have to pay an extra £591 tax on their dividends.

If you are a higher rate taxpayer in receipt of £30,000 of dividends, then your current Income Tax liability would be as follows:

£500 x 0% =	£0	The first £500 is covered by the tax-free DA
£29,500 x 33.75% =	£9,956	The balance is taxable at 33.75%
Total	£9,956

From 6 April 2026, the Income Tax liability would be:

£500 x 0% =	0	The first £500 is still covered by the tax-free DA
£29,500 x 35.75% =	£10,547	The balance is taxable at 35.75%
Total	£10,547

So, the new tax rates from 6 April 2026 onwards would also see a higher rate taxpayer have to pay an extra £591 tax on their dividends.

If you are an additional rate taxpayer, you would see no increase in your dividend tax liability from 6 April 2026 onwards, as the tax rate is remaining at 39.35%.

If you have any queries about how the increased tax rate on dividends will impact you, or if you would like to explore if any tax savings can be achieved prior to the change being introduced in April 2026, please do not hesitate to give us a call on 01228 711888 or 01387 270340.

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