UK Dividend Tax Rates 2025-26
Complete guide to dividend taxation for 2025-26: allowance, rates by income band, and how to calculate what you owe.
Dividend Tax Rates 2025-26
Dividends above the Dividend Allowance are taxed at rates that depend on which income tax band you fall into when dividend income is added on top of your other income.
| Tax Band | Total Income | Dividend Tax Rate |
|---|---|---|
| Basic Rate | £12,571 – £50,270 | 8.75% |
| Higher Rate | £50,271 – £125,140 | 33.75% |
| Additional Rate | Above £125,140 | 39.35% |
Note: dividends are added on top of other income when determining which band applies. If your salary puts you in the Basic Rate band but dividends push you into Higher Rate, the portion of dividends above the Higher Rate threshold is taxed at 33.75%.
Dividend Allowance 2025-26
The Dividend Allowance allows you to receive a certain amount of dividend income tax-free each year:
| Tax Year | Dividend Allowance |
|---|---|
| 2025-26 | £500 |
| 2024-25 | £500 |
| 2023-24 | £1,000 |
| 2022-23 | £2,000 |
| 2021-22 | £2,000 |
The Dividend Allowance has been cut significantly since its peak of £5,000 (2016-17 to 2017-18). At £500, it covers only modest dividend income — most active investors and directors will exceed it.
Worked Examples
Example 1: Director on £12,570 salary + £40,000 dividends
A common director structure: salary at the Personal Allowance threshold, dividends for remaining income.
- Salary: £12,570 — all covered by Personal Allowance, £0 income tax, minimal NI
- Dividend Allowance: first £500 of dividends — £0 tax
- Remaining dividends: £39,500 at 8.75% (all within Basic Rate band) = £3,456
- Total dividend tax: £3,456
- Total income tax + NI: approximately £3,800 on £52,570 combined income
See the salary vs dividends calculator or director tax comparison for your specific situation.
Example 2: Employee on £55,000 salary + £5,000 dividends
An employee who also holds shares in a company.
- Salary £55,000 already places this taxpayer in the Higher Rate band (above £50,270)
- First £500 of dividends: Dividend Allowance — £0 tax
- Remaining £4,500 dividends at Higher Rate: 33.75% = £1,519
- Total dividend tax: £1,519 on £5,000 of dividends
Example 3: Investor on £30,000 salary + £10,000 dividends
- Salary: £30,000 (Basic Rate taxpayer)
- First £500 dividends: tax-free (Dividend Allowance)
- Next £9,500 dividends: 8.75% = £831
- Total dividend tax: £831 — effective rate 8.31% on total dividends
Dividends vs Salary: National Insurance
Dividends are not subject to National Insurance contributions — neither employee nor employer NI. This is the primary reason directors often prefer dividends over salary for extracting profit above the NI threshold. However, dividends can only be paid from company profits, and HMRC scrutinises arrangements where a director's spouse or family member receives dividends without a genuine shareholding role.
ISA Dividends: Always Tax-Free
Dividends received within a Stocks & Shares ISA are completely exempt from dividend tax, regardless of the amount. With a £20,000 annual ISA allowance, long-term investors can shelter substantial dividend income from tax. The Dividend Allowance does not interact with ISA income — ISA dividends are ignored entirely.
How to Pay Dividend Tax
If you are in Self Assessment, report dividends on your tax return under "UK dividends". HMRC will calculate the tax owed.
If you are a PAYE employee with dividends below £10,000, HMRC will usually adjust your tax code to collect the tax. Above £10,000, you may need to register for Self Assessment.
Related Calculators
- Dividend tax calculator — see your exact take-home from dividend income
- Director salary vs dividend comparison
- Salary vs dividends for directors 2025-26
- Dividend allowance calculator
Frequently Asked Questions
What is the dividend tax rate in 2025-26?
Dividend tax rates for 2025-26 are 8.75% (Basic Rate), 33.75% (Higher Rate) and 39.35% (Additional Rate). The first £500 is covered by the Dividend Allowance and is tax-free. These rates apply after dividend income is stacked on top of other income to determine which band applies.
What is the Dividend Allowance in 2025-26?
The Dividend Allowance is £500 for 2025-26 — unchanged from 2024-25. This means the first £500 of dividends each year is tax-free. It was halved from £1,000 to £500 from April 2024.
Do I need to report dividend income to HMRC?
Yes, if your dividends exceed £500. If you are already in Self Assessment, report them on your return. If you are a PAYE taxpayer with dividends between £500 and £10,000, HMRC will typically collect the tax by adjusting your tax code. Above £10,000 in dividends, register for Self Assessment.
How is dividend income taxed if I am a company director?
Directors often take salary to the National Insurance threshold (£12,570 in 2025-26) and dividends for further income. The first £500 of dividends is tax-free. Beyond that, dividends are taxed at 8.75% (Basic Rate) up to £50,270 total income. This is more tax-efficient than a high salary because dividends are not subject to National Insurance.