What Are Dividend Tax Rates?
Dividends are payments made to shareholders from a company's profits after corporation tax. If you operate through a limited company, you can pay yourself a combination of salary and dividends — historically a tax-efficient approach. Dividends are taxed at lower rates than employment income, but the allowance has been reduced significantly since 2017.
Dividend Tax Rates 2025/26
| Tax Band | Income Range | Dividend Tax Rate |
|---|---|---|
| Dividend Allowance | First £500 | 0% |
| 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% |
Source: HMRC / gov.uk · Rates correct for 2025/26 tax year.
The dividend allowance — the amount of dividend income you can receive tax-free — is £500 for 2025/26, reduced from £1,000 in 2023/24 and £5,000 before that. Dividends are always stacked on top of other income when determining which tax band applies.
How Dividends Interact With Salary and Other Income
Dividends are taxed after all other income. If you take a salary of £12,570 (the personal allowance) and then pay yourself £37,700 in dividends, your dividends fall within the basic rate band and are taxed at 8.75% (after the £500 allowance). If your total income exceeds £50,270, the excess dividends attract the 33.75% higher rate.
This stacking order is important for tax planning. Most Ltd company directors take a low salary (at or near the personal allowance) and supplement with dividends to minimise income tax and NI. Use the Ltd company tax calculator to model different salary/dividend combinations.
How to Declare Dividend Income
Dividends are reported on your Self Assessment tax return in the dividends section. You report the gross dividend received. HMRC calculates the tax owed after applying the allowance and appropriate rate. Dividend tax is paid through Self Assessment — it is not withheld at source.
Company dividends can only be paid from accumulated profits after corporation tax. They must be evidenced by dividend vouchers and board minutes — especially important for HMRC compliance if you own your own limited company.