Higher UK dividend tax from April 2026 and your US credit

Which UK dividend tax rates changed from April 2026?

Two of the three. From 6 April 2026 the dividend ordinary rate, which applies to dividends that fall within the basic-rate band, and the dividend upper rate, which applies to dividends in the higher-rate band, both went up. The dividend additional rate stayed where it was, according to the GOV.UK page on tax on dividends (opens the official GOV.UK page in a new tab).

The change was announced at the Budget in November 2025, and GOV.UK publishes the current rates and the dividend allowance on its Income Tax rates (opens the official GOV.UK page in a new tab) pages. This post does not repeat the figures, because they are indexed or revisable and the official page is the place to read them. The dividend rates are not set by Scotland, so a Scottish resident's dividends are taxed at the same dividend rates as elsewhere in the UK, although the bands that decide which rate applies depend on the person's other income.

Nothing changed for dividends that are covered by the dividend allowance, which carries a nil rate, or for dividends held in an ISA (opens the official GOV.UK page in a new tab). Nor did the rise alter how dividends are layered: they are taxed after other income, so a salary pushes them into a higher band first.

• The ordinary rate rose, which reaches dividends in the basic-rate band
• The upper rate rose, which reaches dividends in the higher-rate band
• The additional rate did not change
• The dividend allowance and the ISA wrapper work as before

Can I credit UK dividend tax against my US tax?

Generally yes. UK income tax charged on a dividend is a foreign income tax, and a US citizen can claim it as a credit on Form 1116 instead of deducting it. The credit is limited to the US tax on the foreign-source income concerned, so UK tax above that amount cannot reduce US tax on anything else in the category.

Publication 514 (opens the official IRS page in a new tab) explains the structure. Dividends from a UK company are foreign-source and usually fall in the passive category, which has its own limit and its own carryover, as our post on sorting UK income on Form 1116 sets out. The IRS page on the foreign tax credit (opens the official IRS page in a new tab) describes the choice between a credit and a deduction, and the choice covers every creditable foreign tax for the year.

Only tax that has actually been charged can be credited. Dividends inside the allowance carry no UK tax, and dividends in an ISA carry none either, so there is nothing to claim and the US taxes them in full. The credit is also claimed on the return, not at source, so Form 1040 must carry the Form 1116 or the UK tax is simply lost for that year.

Do qualified dividends change the foreign tax credit?

Yes, because they lower the US tax that the credit is measured against. Many dividends from UK companies are qualified dividends, taxed in the US at the lower rates for that category, provided the company is eligible for the benefits of the treaty and a holding period is met. Lower US tax means a lower credit limit.

The Form 1116 instructions deal with this by adjusting the foreign income in the limitation calculation when qualified dividends are taxed at a lower rate than ordinary income. In plain terms, the form scales the dividends down before working out how much US tax they bear. The adjustment depends on the return as a whole, so it cannot be estimated from the dividend alone.

The result for a UK higher-rate taxpayer is usually an excess. UK tax on the dividend exceeds the US tax on it, the credit is capped at the US tax, and the surplus carries back one year and forward ten in the passive category. A higher UK rate makes that surplus larger. It does not create room to offset US tax on other income, and our post on carrying excess UK tax credits explains when a carryover is later used. The 3.8% net investment income tax (opens the official IRS page in a new tab) is separate: it is generally not creditable under domestic law, and treaty-based claims are contested.

How does Article 24 treat dividends from American shares?

Dividends from US companies are US-source, so the ordinary credit cannot absorb UK tax on them. Article 24 of the treaty fills the gap for a US citizen in the UK. The UK credits US tax only up to the treaty rate, and the US then credits the remaining UK tax by treating the income as UK-source.

The higher UK rate matters most here. Because the UK still gives credit only up to the 15% treaty rate, every extra point of UK tax falls in the part that the US credits on a separate Form 1116 for income re-sourced by treaty. The US tax on the dividend cannot fall below the amount the UK credited, so the total settles at roughly the higher of the two countries' rates, not the sum. Our post on re-sourcing US dividends under Article 24 works through the three stages.

The dividends go on the foreign pages of the UK return, where Foreign Tax Credit Relief (opens the official GOV.UK page in a new tab) is claimed for the US tax. The treaty documents (opens the official IRS page in a new tab) contain the wording of Article 24. Whether a disclosure on Form 8833 accompanies the claim is decided case by case, and our treaty relief service keeps the working papers either way.

Which tax year does the higher rate affect?

The UK tax year that began on 6 April 2026. Dividends received on or after that date are taxed at the new rates, and dividends received earlier fall in the previous UK year at the old ones. The UK year straddles two US calendar years, so the extra tax shows up across two Forms 1116.

UK tax on a dividend is normally settled through Self Assessment after the year ends, with the balancing payment due by 31 January for an online return. That is often a different US year from the one in which the dividend was taxed in the US. Credit can be claimed for tax paid or for tax accrued, with an election for the accrued basis, and our post on which year to credit UK tax explains how the choice affects timing.

A client who has made payments on account should also expect the figures to move. The first return that carries the new rates is the 2026 to 2027 SA100, and the matching US credit follows the year of payment or accrual. Preparing both returns from one schedule keeps the dividend, the UK tax charged and the credit claimed in step.

• Dividends paid before 6 April 2026 stay at the old rates
• Dividends paid from 6 April 2026 take the new ordinary and upper rates
• Payments on account and the balancing payment can land in different US years
• Foreign currency amounts need converting at the right rate for each return

What does this mean for a higher-rate taxpayer in Bristol?

Take a US citizen employed in Bristol whose salary puts her in the UK higher-rate band. She holds shares in a UK listed company and a handful of American shares through a US broker, and she has been reporting both countries' returns for several years. The rise lifts the UK tax on all her dividends this year.

On her US return the UK company dividends are passive category income. If they are qualified, the US tax on them is modest, so the credit is capped well below the UK tax and the surplus carries forward. The higher rate simply enlarges the surplus. Her American dividends are handled differently: they are re-sourced under Article 24, so the UK tax above the treaty-rate credit is claimed on the treaty category form, and the US tax on those dividends cannot fall below the UK credit.

The practical consequence is that her overall tax on dividends rises with the UK rate and the US recovers little of it. If she is considering holding more of her portfolio in an ISA, or changing how much she draws in dividends, the answer turns on her full position on both returns, which our individual tax returns service and the guide to avoiding US-UK double taxation cover. If she owns the company, other rules apply, including Form 5471, and they sit outside this post.