UK Tax Bands and Rates 2026/27: Income, Dividends, CGT and NI

Last updated 18 August 2026.

Every April I end up having the same conversation two or three dozen times, and it usually starts with a version of this question: "my salary's taxed at 20%, so my dividends are at 20% too, right?

Let's put a name to it. Nathan is a Kiwi software developer who's been contracting in London for about six years. He runs a limited company, pays himself a small salary and takes the rest as dividends, and he's got a flat in Brighton that he rents out.

Like a lot of people, he's heard "basic rate taxpayer" and assumed it's one setting that applies to everything he earns. It isn't. Your salary, your savings interest, your dividends and your capital gains all have their own rates, and they sit on top of each other in a fixed order.

This year that matters more than usual, because dividend rates went up on 6 April 2026 while the allowances and thresholds around them stayed put. If you're a contractor drawing dividends, 2026/27 costs you more than 2025/26 did on exactly the same income.

One thing before we start. If you're here because you're filling in a tax return, you probably want the previous year. The return due on 31 January 2027 covers 2025/26, and those rates are on our 2025/26 page. Everything below is the year we're currently in.

Here's how it all fits together.

What actually changed for 2026/27

Three things, and one warning about next year.

1. Dividend tax went up by two percentage points at the basic and higher rates, from 6 April 2026. The additional rate stayed where it was.
2. Business Asset Disposal Relief went up to 18%, finishing a climb that started at 10% two years ago.
3. Almost everything else is frozen. The personal allowance, the higher rate threshold, the dividend allowance, the CGT annual exempt amount, the inheritance tax nil rate bands. Frozen isn't the same as unchanged, though. Wages go up, thresholds don't, and more of your income quietly crosses into the next band. That's fiscal drag, and it's doing a lot of heavy lifting in the current tax take.
4. The warning: savings income and property income both get a two point rise from April 2027, not this year. If you're a landlord or you're sitting on cash outside an ISA, that's the one to plan around.

Income Tax rates and bands

The personal allowance is £12,570. Earn less than that in a tax year and you owe no income tax on it. It's been £12,570 since April 2021 and it's now frozen until April 2031, which is a decade at the same number.

Above the allowance, in England, Wales and Northern Ireland:

Note the shape of that. The basic rate band itself is £37,700 wide, and it sits on top of your allowance rather than including it. That distinction matters later, because capital gains are taxed according to how much of that band you've got left when the gain lands.

There's a nasty bit in the middle that the table doesn't show. Once your income goes over £100,000, your personal allowance drops by £1 for every £2 you earn above it. By £125,140 it's gone completely. In that £25,140 stretch you're paying 40% on the income and losing allowance at the same time, which works out at an effective 60%. Nathan isn't near it, but plenty of contractors on day rates are, and it's the single best argument for a pension contribution I know of.

Wales uses the same rates and thresholds as England. Scotland does not.

Scottish Income Tax bands

If you live in Scotland, you have six bands rather than three, and the thresholds shifted this year.

The starter and basic bands got noticeably wider for 2026/27, which hands lower earners a small saving. Everything from the intermediate rate upwards is frozen in cash terms.

The number that catches people out is £43,663. That's where the Scottish higher rate starts, and it's more than £6,500 below where the rest of the UK crosses into 40%. A Scottish taxpayer on £50,000 pays 42% on that top slice while someone on identical money in Newcastle pays 20%.

Here's the bit worth underlining. Scottish rates only apply to wages, pensions and most other non-savings income. Your dividends and your savings interest are taxed at UK-wide rates wherever you live, and so are your capital gains. So if you're a Scottish contractor taking dividends out of a limited company, the Scottish bands hit your salary and then stop. Same for the CGT calculation later in this article. Worth knowing before you assume you're paying 42% on everything.

National Insurance contributions

National Insurance is the tax people forget to include when they're working out what a contract is really worth.

If you're employed, including if you're an employee of your own limited company, you pay Class 1 at 8% on earnings between £12,570 and £50,270 a year, then 2% on everything above that. In weekly terms the thresholds are £242 and £967.

If you're the employer, and if you run a limited company that's also you, the company pays 15% on earnings above a secondary threshold of just £5,000 a year. That threshold is low, and it's the reason the classic "£12,570 salary" strategy doesn't work quite as cleanly as it used to. The Employment Allowance sits at £10,500 for 2026/27, but a single-director company with no other employees generally can't claim it.

If you're self-employed, Class 4 runs at 6% on profits between £12,570 and £50,270, then 2% above. Class 2 isn't a bill any more. If your profits are £7,105 or more, you're treated as having paid it and you get the state pension credit for free. Below that, you can pay voluntarily at £3.65 a week to keep your record clean. That's less than the flat white you'll be drinking while you work out whether you need to, and it buys a year of state pension record, so it's usually an easy yes.

And the thing that makes the whole limited company structure work: dividends carry no National Insurance at all. Not employee, not employer. That's why the salary-plus-dividends mix still beats a straight salary for most contractors even after this year's rate rise, although the margin has been narrowing for years now.

Dividend Income Tax rates

This is the section that changed, so it's the one to read properly.

You get a dividend allowance of £500. Dividends inside that are tax free. It's worth remembering what that number used to be, because it's fallen a long way in a short time: £5,000 in 2017/18, £2,000 until 2022/23, £1,000, then £500. Above the allowance, the rate depends on which income tax band the dividend lands in.

Two points doesn't sound like much until you put a real number against it.

Nathan's numbers. He takes a £12,570 salary and £40,000 in dividends, so £52,570 in total. The salary uses up his personal allowance exactly. The first £500 of dividends is covered by the dividend allowance, and here's a detail that trips people up: that £500 still uses up £500 of his basic rate band even though it's taxed at nothing. That leaves £37,200 of dividends taxed at the basic rate, and £2,300 poking above £50,270 into the higher rate.

1. £37,200 at 10.75% = £3,999.00
2. £2,300 at 35.75% = £822.25
3. Total dividend tax: £4,821.25

On last year's rates the same draw would have cost him £4,031.25. So he's £790 worse off for doing exactly what he did last year, and nothing about his business changed. If you want to run your own version, our dividend tax calculator will do the arithmetic for you.

The planning response isn't dramatic, and I'd be suspicious of anyone telling you it is. It's the usual unglamorous list: check the salary level is still right for the company's position, look hard at employer pension contributions, and think about whether the timing of a large draw straddles a tax year boundary usefully. If you're a limited company contractor, that conversation is worth having before you draw, not in the following January.

Savings income

Interest is taxed at your normal income tax rates, so 20%, 40% or 45% for 2026/27, but two allowances usually get there first.

The Personal Savings Allowance gives you £1,000 of tax free interest if you're a basic rate taxpayer, £500 if you're a higher rate taxpayer, and nothing at all if you're an additional rate taxpayer. Despite the name it isn't really an allowance, it's a nil rate band, which means interest covered by it is still taxable income and still uses up part of your basic rate band. That sounds like pedantry until you see what it does to the dividend calculation further down.

The starting rate for savings is the one that gets overlooked, mostly because it's designed for people with very little earned income. You get up to £5,000 of savings interest at 0%, but every pound of non-savings income above your personal allowance eats a pound of it. Earn £17,570 or more from wages, and it's gone entirely. It's genuinely useful in one specific situation: a director on a low salary in a year when the company didn't make much, or someone who's stopped work partway through a year.

Now the bit to diarise. From April 2027 the savings rates go up by two percentage points to 22%, 42% and 47%. That's next tax year, not this one, so it doesn't affect what you're doing right now. It does affect whether cash you're holding outside an ISA should stay there, and the cash ISA limit itself drops to £12,000 from April 2027 for anyone under 65. If you've got a chunk of cash sitting in a savings account, this is a 2026/27 job, not a 2027/28 one.

Capital Gains Tax rates

Nathan's Brighton flat is the reason he asked about this.

The annual exempt amount is £3,000. That's the gain you can make in a tax year before CGT applies at all, and it's a long way down from the £12,300 it was a few years ago.

Above that, CGT works differently from income tax in one important way: the rate depends on where the gain sits once it's stacked on top of your income.

The old split between residential property and other assets has gone. Shares and buy-to-lets are now taxed at the same rates, which is a simplification and, for anyone selling shares, a rate rise in disguise.

Business Asset Disposal Relief is now 18%. It was 10% up to 5 April 2025, 14% for 2025/26, and 18% from 6 April 2026. If you're a contractor who's been thinking about closing your company and extracting the reserves, that timetable has finished climbing, so the "should I have done it sooner" question is no longer a useful one to torture yourself with.

A worked example. Say Nathan sells the Brighton flat in 2026/27 and makes a gain of £60,000 after costs. His income for the year is his £12,570 salary plus £40,000 of dividends.

First, the annual exempt amount: £60,000 less £3,000 leaves £57,000 taxable.

Then we work out how much of his basic rate band is left. His salary uses the personal allowance. His dividends have then used the whole £37,700 basic rate band, with £2,300 spilling over into higher rate territory. So there is no basic rate band left at all, and the whole £57,000 gain is taxed at 24%.

CGT payable: £13,680.

If Nathan had drawn a smaller dividend that year, part of that gain would have been taxed at 18% instead of 24%, and each £1,000 of basic rate band he freed up would have saved him £60. That's not a reason to distort a whole year's remuneration around a property sale, but it is a reason to tell your accountant about the sale before it happens rather than after.

Two things worth flagging. Residential property gains have their own 60 day reporting and payment deadline, which is separate from your tax return and catches a lot of people. And if the flat was ever your main home, private residence relief may cover part of the gain, which changes the numbers substantially. If you're renting out UK property, our landlord service page covers how we handle this.

Inheritance Tax

Not Nathan's immediate problem, but it comes up in almost every conversation about property, so it belongs here.

The nil rate band is £325,000. It's been £325,000 since April 2009 and it's frozen until April 2031. Nothing else in the tax system has stood still for that long while house prices did what they did.

The residence nil rate band adds up to a further £175,000 where a home passes to children or grandchildren, taking a single estate up to £500,000 and a married couple's combined position up to £1 million. It's frozen until April 2031, same as the nil rate band, and it tapers away by £1 for every £2 an estate is worth above £2 million.

The rate itself is 40% on anything above the available bands, dropping to 36% if 10% or more of the net estate goes to charity.

Estate planning proper is a specialist job and we refer that out, but the arithmetic above is the starting point for knowing whether you need the conversation at all.

How the bands stack

This is the mechanism behind everything above, and it's the bit that answers Nathan's original question.

Your income is taxed in a set order:

1. Non-savings income first. Employment, self-employment, pensions, rental profits.
2. Savings income next. Interest, sitting on top of your earnings.
3. Dividends last. On top of everything else.
4. Capital gains are calculated separately, then stacked on top of your income to decide whether they're taxed at 18% or 24%.

So the answer to "my salary's at 20%, are my dividends at 20% too" is no, and not for the reason most people expect. It's not that dividends have their own separate scale running alongside your salary. It's that dividends go on top, and where they land determines the rate.

Practical example. Priya is an IT contractor in Manchester with £30,000 of salary, £600 of savings interest and £25,000 of dividends.

1. Her personal allowance covers the first £12,570 of salary. The remaining £17,430 of salary is taxed at 20%.
2. Her £600 of interest sits next, on top of £30,000. This is where it gets counter-intuitive. Her total income is £55,600, which makes her a higher rate taxpayer overall, so her Personal Savings Allowance is £500 rather than £1,000. That leaves £100 of interest taxable, and because it's sitting at the £30,600 mark it's taxed at 20%. Twenty pounds. Small, but it surprises people, because her salary on its own would have given her the full £1,000.
3. Her dividends sit on top of everything else. The first £500 is covered by the dividend allowance. The next £19,170 fills what's left of the basic rate band up to £50,270 and is taxed at 10.75%. The remaining £5,330 is taxed at 35.75%.

Change any one of those three income sources and the whole calculation moves, which is why "what rate am I on" is never quite the right question. The one worth asking is what rate the next pound is on.

Summary

1. The personal allowance is £12,570 and the bands in England, Wales and Northern Ireland are 20%, 40% and 45%, unchanged and frozen to April 2031.
2. Scotland has six bands from 19% to 48%, with the higher rate biting from £43,663. Scottish rates apply to wages and pensions only, not to dividends, savings or gains.
3. Dividend rates rose to 10.75% and 35.75% for 2026/27. The additional rate stayed at 39.35%. The allowance is still £500.
4. National Insurance is 8% then 2% for employees, 15% for employers above £5,000, and 6% then 2% for the self-employed. Dividends carry no NI.
5. Capital gains are 18% within your basic rate band and 24% above, with a £3,000 annual exempt amount. Business Asset Disposal Relief is now 18%.
6. Inheritance tax is 40% above £325,000, plus up to £175,000 of residence nil rate band.
7. Income stacks in a fixed order: earnings, then savings, then dividends, with gains layered on top to set the CGT rate.
8. Savings and property income both get a two point rise from April 2027.

Frequently Asked Questions

What is the personal allowance for 2026/27?

£12,570, and it's frozen at that figure until April 2031. It reduces by £1 for every £2 of income above £100,000 and disappears entirely at £125,140.

Did dividend tax go up in 2026/27?

Yes. The basic rate went from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%, both from 6 April 2026. The additional rate stayed at 39.35% and the £500 dividend allowance was left alone.

Do Scottish taxpayers pay Scottish rates on dividends?

No. Scottish rates apply to wages, pensions and most other non-savings income. Dividends, savings interest and capital gains are all taxed at UK-wide rates regardless of where in the UK you live.

Is it still worth taking dividends instead of salary?

For most limited company contractors, yes. Dividends carry no National Insurance at either end, and that gap is wide enough to survive a two point rate rise. It's still worth checking the salary level each April rather than assuming last year's number is automatically right.

What's the capital gains tax rate on a rental property?

18% on the part of the gain that falls within your remaining basic rate band and 24% on the rest, after the £3,000 annual exempt amount. Residential property gains also have to be reported and paid within 60 days of completion, separately from your tax return.

When do the savings and property tax rises start?

April 2027, not April 2026. Savings income moves to 22%, 42% and 47%, and property income gets its own set of rates at the same levels.

Which year do I use for my tax return?

The return due on 31 January 2027 covers the 2025/26 tax year, not this one. Use the 2025/26 rates for that. The rates on this page apply to the return you'll file in January 2028.

I've been on PAYE all year, do I need to do anything?

Usually not, if your only income is one salary and your tax code is right. It's worth a look if you've had savings interest above your Personal Savings Allowance, dividends above the £500 allowance, or a second income of any kind. Smaller amounts can often be collected through your tax code rather than a return, but somebody needs to have told HMRC about them. Our personal tax return service covers all of that.

Does the £5,000 employer National Insurance threshold apply to my own company?

Yes. If your company pays you a salary, it's an employer, and it pays 15% on anything above £5,000 a year. That's the single biggest reason the old default salary figures deserve a fresh look each April.

Getting it right

Rates are the easy part. Knowing which pound of income is being taxed at which rate, and in what order, is where the actual money is, and it's also where most of the mistakes I see come from.

If you're wondering how the 2026/27 rates land on your particular mix of salary, dividends, interest and property, get in touch with No Worries Accounting. We've been guiding Kiwi and Aussie contractors through the UK tax system for over twenty years, and we're happy to talk it through, no obligation, no sales pitch.