£40,000 Dividends After Tax on £28,000 Salary | 2025-26
Dividend allowance: £500 tax-free · Effective dividend rate: 19.4%
Dividend tax breakdown 2025-26
| Item | Amount | Tax |
|---|---|---|
| Salary income tax | £28,000 | −£3,086 |
| Dividend allowance (tax-free) | £500 | £0 |
| Dividends at 8.75% (basic rate) | £22,270 | −£1,949 |
| Dividends at 33.75% (higher rate) | £17,230 | −£5,815 |
| Dividends take-home | £40,000 | £32,236 |
| Total net income | £68,000 | £57,150 |
UK dividend tax rates 2025-26
| Band | Rate | Income range |
|---|---|---|
| Dividend Allowance | 0% | First £500 (tax-free) |
| Basic rate | 8.75% | Basic rate band (up to £50,270 total income) |
| Higher rate | 33.75% | Higher rate band (£50,271 – £125,140) |
| Additional rate | 39.35% | Over £125,140 |
£40,000 dividends — how much tax do you pay?
On £40,000 in dividends with £28,000 salary income, dividend tax is £7,764. The first £500 of dividends is covered by the dividend allowance (tax-free), leaving £39,500 of taxable dividends. Your effective dividend tax rate is 19.4% — you take home £32,236.
UK dividend tax rates are significantly lower than income tax + NI rates: 8.75% in the basic rate band vs 28% income tax + NI for salary. For higher rate taxpayers, dividends are taxed at 33.75% vs 42% for salary. This is why many company directors pay themselves partly through dividends.
Note: dividends do not attract National Insurance contributions (unlike salary), which makes them even more tax-efficient. Total tax on £40,000 dividends + £28,000 salary: £10,850. Total net income: £57,150.
Frequently asked questions
How much tax do I pay on £40,000 dividends with a £28,000 salary?
On £40,000 dividends with £28,000 salary income, dividend tax is £7,764. The first £500 dividend allowance is tax-free; taxable dividends are £39,500. Your effective dividend tax rate is 19.4%. You keep £32,236 from your dividends.
What are the UK dividend tax rates for 2025-26?
UK dividend tax rates 2025-26: Basic rate (8.75%) on dividends in the basic rate band, Higher rate (33.75%) on dividends in the higher rate band, Additional rate (39.35%) on dividends above £125,140. The dividend allowance is £500 — the first £500 of dividends each year is tax-free regardless of your tax band.
How is dividend tax calculated?
Dividends are taxed on top of your other income (salary, pension, etc.). First, deduct the £500 dividend allowance. The remaining dividends are taxed at the rate matching the income band they fall into — if your salary already fills the basic rate band, dividends are taxed at higher rate (33.75%). Total income = £68,000; total tax = £10,850.
What is the dividend allowance for 2025-26?
The dividend allowance for 2025-26 is £500. Every UK taxpayer can receive up to £500 in dividends each tax year without paying dividend tax, regardless of their income tax band. This allowance was reduced from £1,000 in 2024-25 and from £2,000 in 2022-23.
Are dividends tax-efficient compared to salary?
Dividends are generally more tax-efficient than salary for company directors because: (1) no National Insurance on dividends, (2) lower dividend tax rates than income tax + NI. A typical director strategy combines a small salary (up to the NI threshold) with dividends. However, dividends can only be paid from company profits.
How do I report dividend income to HMRC?
If your dividends exceed the £500 allowance, you must report them via Self Assessment. If you are employed and receive dividends above £500 but under £10,000, HMRC may collect the tax via your tax code. Dividends from ISA accounts are always tax-free and do not count toward the allowance.
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