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Dividend Tax Calculator 2025/26

Calculate tax on your dividend income for the 2025/26 tax year. Enter your dividends and other income to see how much dividend tax you will pay, including the £500 dividend allowance.

How Dividend Tax Works in the UK

Dividend tax in the UK uses a unique system where dividends are taxed last, after all other income. This means the tax rate on your dividends depends on how much non-dividend income you receive. Dividends have their own set of tax rates which are lower than the equivalent rates on employment or self-employment income.

The calculation works in stages. First, your personal allowance (£12,570 for 2025/26) is applied against your total income. Any unused personal allowance can shelter dividend income from tax. Then, the dividend allowance of £500 applies to dividends above your personal allowance, making them tax-free. Finally, dividends above both allowances are taxed at the dividend rates applicable to the tax band they fall into.

It is important to understand that the dividend allowance does not create a separate tax-free band. The £500 allowance is a zero-rate band that still counts towards determining which tax band subsequent dividends fall into. This means that £500 of dividends within the basic rate band uses up basic rate band space, even though no tax is charged on it.

Dividend Tax Rates for 2025/26

Tax BandDividend RateIncome Tax Rate (comparison)
Dividend Allowance (first £500)0%N/A
Basic Rate (up to £50,270)8.75%20%
Higher Rate (£50,271 to £125,140)33.75%40%
Additional Rate (over £125,140)39.35%45%

The dividend tax rates are lower than income tax rates because dividends are paid from company profits that have already been subject to corporation tax at 19% or 25%. The lower dividend rates partially compensate for this double taxation, though the combined effective rate on distributed profits is still higher than the equivalent income tax rate on employment income in many cases.

What Changed in April 2025

The dividend allowance for 2025/26 remains at £500, having been cut from £1,000 in the previous year and £2,000 the year before that. This reduction means that more dividend income is now subject to tax.

The dividend tax rates themselves have not changed for 2025/26. However, the frozen income tax thresholds mean that fiscal drag may push more of your dividend income into higher rate bands if your other income has increased. Additionally, the increase in employer NI to 15% (with a reduced threshold of £5,000) makes salary less attractive compared to dividends for company directors.

Worked Examples

Example 1: £10,000 Dividends with £30,000 Salary

A company director with a £30,000 salary and £10,000 in dividends:

  • Total income: £40,000
  • Personal allowance: £12,570 (used by salary)
  • Salary tax: £3,486 (standard PAYE calculation)
  • Dividend allowance: £500 (tax-free)
  • Taxable dividends: £10,000 - £500 = £9,500
  • All dividends in basic rate band (salary at £30,000, so room for £20,270 of dividends)
  • Dividend tax: £9,500 at 8.75% = £831.25

Example 2: Dividends Crossing into Higher Rate

A director with a £45,000 salary and £15,000 in dividends:

  • Total income: £60,000
  • Room in basic rate band after salary: £50,270 - £45,000 = £5,270
  • Dividend allowance: £500 (within basic band)
  • Dividends in basic rate: £5,270 - £500 = £4,770 at 8.75% = £417.38
  • Dividends in higher rate: £15,000 - £5,270 = £9,730 at 33.75% = £3,283.88
  • Total dividend tax: £3,701.26

Example 3: Low Income with Dividends

A part-time worker with a £5,000 salary and £10,000 in dividends:

  • Total income: £15,000
  • Personal allowance: £12,570
  • PA used by salary: £5,000
  • Remaining PA for dividends: £7,570
  • Dividends covered by PA: £7,570 (tax-free)
  • Remaining dividends: £10,000 - £7,570 = £2,430
  • Dividend allowance: £500
  • Taxable dividends: £2,430 - £500 = £1,930
  • Dividend tax: £1,930 at 8.75% = £168.88

Dividend Tax for Company Directors

Most small company directors pay themselves a combination of salary and dividends. The typical strategy is to take a salary at or just above the National Insurance primary threshold (£12,570 for 2025/26). This preserves NI credits for State Pension without triggering employee or employer NI contributions. Remaining income is extracted as dividends.

From April 2025, the employer NI threshold was reduced to £5,000 and the rate increased to 15%. This makes it more costly to pay a salary above the employment allowance threshold. For directors who are the sole employee, the employment allowance of £10,500 can offset employer NI, making a salary up to £12,570 very tax-efficient.

It is worth noting that dividends can only be paid from retained company profits. You cannot declare a dividend if the company does not have sufficient distributable reserves. Paying dividends in excess of available profits is illegal and can create personal tax and legal liabilities.

Common Mistakes with Dividend Tax

1. Ignoring How Other Income Affects Dividend Tax

Because dividends are taxed last (on top of other income), your salary or self-employment income directly determines which tax band your dividends fall into. A £10,000 dividend payment could be taxed at 8.75% or 33.75% depending on your other income. Always consider your total income picture.

2. Forgetting the Personal Allowance Taper

If your combined income (salary plus dividends) exceeds £100,000, your personal allowance begins to taper. This affects the tax calculation on all your income, not just the amount over £100,000. The taper can create an effective marginal rate much higher than the headline dividend rates.

3. Confusing Dividend Allowance with Tax-Free Status

The £500 dividend allowance is not a true allowance like the personal allowance. It is a zero-rate band that still occupies space in your tax bands. This means it does not increase the total amount you can earn tax-free; it simply means the first £500 of taxable dividends are charged at 0% instead of the normal dividend rate.

Frequently Asked Questions

How is dividend tax calculated in the UK?
Dividend tax is calculated after your other income (salary, self-employment, etc.) has been accounted for. First, your total income determines your personal allowance (£12,570 for 2025/26). Dividends that fall within your personal allowance are tax-free. The next £500 of dividends is covered by the dividend allowance (also tax-free). Dividends above this are taxed at special dividend rates: 8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate. The rate depends on which income tax band the dividends fall into when added on top of your other income.
What is the dividend allowance for 2025/26?
The dividend allowance for 2025/26 is £500. This means the first £500 of dividend income above your personal allowance is tax-free. This was reduced from £1,000 in 2023/24 and £2,000 in 2022/23. The dividend allowance still counts towards your total income for the purpose of determining which tax band applies to dividends above the allowance. So while you do not pay tax on the first £500, those dividends still use up space in the basic rate band.
What are the dividend tax rates for 2025/26?
For the 2025/26 tax year, dividend income is taxed at: 8.75% for basic rate taxpayers (dividends falling within the £12,571 to £50,270 band), 33.75% for higher rate taxpayers (dividends in the £50,271 to £125,140 band), and 39.35% for additional rate taxpayers (dividends above £125,140). These rates are significantly lower than the equivalent income tax rates on employment income, which is why many company directors choose to pay themselves partly through dividends.
How does other income affect my dividend tax?
Your other income (salary, self-employment, rental income, etc.) is taxed first, and dividends sit on top. This means your other income determines where your dividends start in the tax bands. For example, if you earn a £30,000 salary, your dividends start at £30,000 in the tax bands, meaning there is room for about £20,270 of dividends in the basic rate band before higher rate kicks in. If you earn £50,270 or more from other sources, all your taxable dividends will be taxed at the higher or additional rate.
Should I take a salary or dividends as a company director?
Most company directors pay themselves a combination of a small salary (typically at the NI threshold of £12,570 to maintain NI credits without paying employee NI) and dividends above this. Dividends are taxed at lower rates than salary (8.75% vs 20% for basic rate) and do not attract National Insurance contributions. However, dividends can only be paid from company profits and are not a tax-deductible expense for corporation tax purposes. The optimal split depends on your total income, company profits, and whether you need the income to count for mortgage or pension purposes.
Do I need to declare dividends on my tax return?
You must declare dividend income on your Self Assessment tax return if your total dividend income exceeds £500 (the dividend allowance) or if your total income from all sources exceeds £100,000. If your only income is from dividends within the dividend allowance, you do not need to file a return. However, dividends from ISAs and pensions are tax-free and do not need to be declared regardless of the amount. If you receive dividends through payroll (such as from share incentive plans), these are typically handled by your employer through PAYE.

Related Calculators

Income TaxCalculate your UK income tax breakdown by band for England, Scotland, or Wales.Corporation TaxCalculate corporation tax with small profits rate, main rate, and marginal relief.Self-Employed TaxCalculate income tax, Class 2 and Class 4 NI, and payments on account for self-employment.Salary CalculatorCalculate your take home pay after tax, National Insurance, student loans, and pension contributions.