Calculate how much tax you'll pay on your UK dividends for the 2025/26 tax year, including the £500 tax-free allowance.
Dividends are taxed differently to salary income. Every UK taxpayer gets a £500 tax-free dividend allowance for 2025/26. This was reduced from £1,000 in 2023/24 and £2,000 in 2022/23.
Dividends above the allowance are taxed at rates that depend on which income tax band they fall into. Crucially, dividends are treated as the "top slice" of your income — meaning they sit on top of your salary for tax purposes.
| Tax Band | Dividend Tax Rate |
|---|---|
| Basic rate (up to £50,270 total income) | 8.75% |
| Higher rate (£50,271 – £125,140) | 33.75% |
| Additional rate (over £125,140) | 39.35% |
Your dividends are added on top of your other income to determine which tax band they fall into. For example, if you earn £40,000 salary and receive £15,000 in dividends, the first £500 of dividends is tax-free. The next £10,270 falls within the basic rate band (up to £50,270 total), taxed at 8.75%. The remaining £4,230 falls into the higher rate band, taxed at 33.75%.
Many limited company directors pay themselves a small salary and take the rest as dividends to reduce their overall tax bill. Dividends don't attract National Insurance, which is why this strategy is popular. However, HMRC expects dividends to reflect genuine company profits. Use our salary calculator to compare what you'd take home on a pure salary basis.
If your dividend income is above the £500 allowance and you owe tax on it, you'll typically need to file a Self Assessment tax return. If your total dividend income is under £10,000, HMRC may be able to collect the tax by adjusting your tax code instead.