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Your Dividend Tax
Based on 2025/26 HMRC dividend tax rates. This is an estimate — seek professional advice for complex situations.
How Dividend Tax Works in the UK
Dividend tax applies to income you receive from shares in a company. This includes dividends from your own limited company or from investments in listed companies. The way dividends are taxed differs from employment income.
The Dividend Allowance
Every individual receives a tax-free dividend allowance. For 2025/26, this is £500. The allowance was reduced from £1,000 in 2023/24 and from £2,000 in 2022/23. Any dividends within this allowance are tax-free, regardless of which income tax band you fall into.
How Dividends Are Taxed
Dividends are taxed after your other income (such as salary). Your salary uses up your personal allowance and basic rate band first. Dividends are then "stacked" on top to determine which tax band they fall into. The dividend tax rates are lower than income tax rates because company profits have already been subject to Corporation Tax.
- Calculate your income tax on salary using your personal allowance and tax bands
- Deduct the £500 dividend allowance from your dividend income
- Stack the remaining dividends on top of your salary
- Apply the dividend tax rate for whatever band the dividends fall into
2025/26 Dividend Tax Rates
| Tax Band | Income Range | Dividend Rate | Income Tax Rate |
|---|---|---|---|
| Personal Allowance | Up to £12,570 | 0% | 0% |
| Basic Rate | £12,571 – £50,270 | 8.75% | 20% |
| Higher Rate | £50,271 – £125,140 | 33.75% | 40% |
| Additional Rate | Over £125,140 | 39.35% | 45% |
Salary vs Dividends: Which Is Better?
For company directors, the key advantage of dividends is that no National Insurance is payable on dividend income. With employer NI at 15% and employee NI at 8%, taking a low salary and the rest as dividends can significantly reduce your total tax bill.
A common strategy is to take a salary at the NI primary threshold (£12,570 for 2025/26) and the rest as dividends. However, you should consider factors like pension contributions, state pension qualifying years, and Corporation Tax implications.
Dividend Tax Examples
Small Business Owner
Company Director
High Earner
Frequently Asked Questions
The dividend allowance for 2025/26 is £500. This means the first £500 of dividend income is tax-free regardless of your tax band. The allowance was reduced from £1,000 in 2023/24 and from £2,000 in 2022/23.
The dividend tax rates for 2025/26 are: Basic rate 8.75%, Higher rate 33.75%, and Additional rate 39.35%. These rates apply to dividends above the £500 allowance.
Dividends are stacked on top of your salary to determine which tax band they fall into. Your salary uses up your personal allowance and basic rate band first. Dividends are then taxed at the applicable dividend rate for whatever band they fall into. For example, if your salary is £40,000, you have £10,270 of basic rate band remaining before dividends push into the higher rate band.
For company directors, a combination of a low salary (around the NI threshold of £12,570) plus dividends is often the most tax-efficient strategy. Dividends are not subject to National Insurance contributions, saving both employee NI (8%) and employer NI (15%). However, taking a salary at least at the NI lower earnings limit ensures you qualify for state pension entitlement.
No. Dividends are not subject to National Insurance contributions. This is one of the key advantages of taking income as dividends rather than salary. NI is only charged on employment or self-employment income.
You must file a Self Assessment tax return if your dividend income exceeds £10,000 in a tax year, or if you need to pay tax on dividends that cannot be collected through your PAYE tax code. If your total dividend income is within the £500 allowance and you have no other untaxed income, you may not need to file a return.