A shareholder compares their dividend tax position between the 2025/26 and 2026/27 UK tax years, with their dividend income above the dividend allowance falling entirely within the higher rate band in both years. Under the tax rate change that took effect from 6 April 2026, what changed?
- Nothing changed; the ordinary and upper dividend rates stayed at 8.75% and 33.75% in both years
- The rate on dividend income within the higher rate band rose from 33.75% to 35.75%, a 2 percentage point increase, while the additional rate of 39.35% was left unchanged
- The rate on dividend income within the higher rate band fell from 33.75% to 31.75%, easing the tax burden on shareholders in this band
- The dividend allowance itself was abolished from 6 April 2026, so all dividend income above the higher rate band is now taxed from the very first pound
Why B? And why not the others?
Correct answer: B. The rate on dividend income within the higher rate band rose from 33.75% to 35.75%, a 2 percentage point increase, while the additional rate of 39.35% was left unchanged
From 6 April 2026 the government raised the ordinary dividend rate from 8.75% to 10.75% and the upper (higher rate band) dividend rate from 33.75% to 35.75%, a 2 percentage point rise on each, while leaving the additional rate unchanged at 39.35%, so a shareholder whose dividend income sits in the higher rate band in both years sees their rate rise by exactly 2 percentage points, matching the second option. The option claiming no change occurred is wrong because 8.75% and 33.75% were the rates that applied only up to the 2025/26 tax year, before this rise took effect. The option describing a fall to 31.75% is wrong because the rate change was an increase, not a reduction, and moved in the opposite direction from what this option describes. The option claiming the dividend allowance was abolished is wrong because the £500 dividend allowance itself was untouched by this change; only the rates charged on dividend income above the allowance increased.
Source: GOV.UK: Changes to tax rates for property, savings and dividend income