You're in the 40% Higher Rate tax band. Consider salary sacrifice pension contributions to reduce your taxable income — every £1 into pension saves 40p in tax plus 8p in NI.
Dividend Tax Calculator UK — How Much Tax Do You Pay on Dividends?
Dividends are payments made by a company to its shareholders from after-tax profits. In the UK, dividends are taxed differently from salary income — they benefit from a separate Dividend Allowance and are taxed at lower rates than equivalent salary income. This makes dividends a tax-efficient way to extract income from a company, particularly for owner-managed businesses and company directors. This free UK dividend tax calculator shows you exactly how much tax you owe on your dividends, taking into account your other income, the Dividend Allowance, and the applicable dividend tax rates for 2025/26.
Dividend Tax Rates UK 2025/26 — Allowance and Bands
The Dividend Allowance for 2025/26 is £500 — reduced from £1,000 in 2023/24 and £2,000 in previous years. Dividends within this allowance are tax-free. Above the allowance, dividends are taxed according to which Income Tax band they fall into, after adding them on top of your other income. The rates are significantly lower than the equivalent salary rates.
Tax Band
Dividend Tax Rate
Equivalent Salary Rate
Saving vs Salary
Basic Rate (up to £50,270)
8.75%
20%
11.25%
Higher Rate (£50,271–£125,140)
33.75%
40%
6.25%
Additional Rate (above £125,140)
39.35%
45%
5.65%
Note: Dividends do not attract National Insurance contributions, which is an additional saving compared to salary income. However, dividends are paid from company profits that have already been subject to Corporation Tax (25% for profits above £250,000 in 2025/26), so the effective combined tax rate is higher than the dividend rate alone suggests.
Director Dividend Calculator — Optimal Salary and Dividend Mix
For company directors and owner-managers, the most tax-efficient strategy is typically to pay a small salary (up to the NI Primary Threshold or Personal Allowance) and take the remainder of income as dividends. The table below shows the approximate tax position for a director taking a common salary/dividend combination in 2025/26, assuming no other income.
Strategy
Salary
Dividends
Total Tax + NI
Net Income
All salary
£50,000
£0
~£10,476
~£39,524
Salary to PA + dividends
£12,570
£37,430
~£3,275
~£46,725
Salary to NI threshold + dividends
£12,570
£37,430
~£3,275
~£46,725
All dividends (no salary)
£0
£50,000
~£4,156
~£45,844
Important: These figures are illustrative and do not account for Corporation Tax on the company profits from which dividends are paid. Always consult a qualified accountant before making decisions about salary/dividend strategy.
UK Dividend Allowance — What Has Changed in Recent Years?
The Dividend Allowance has been significantly reduced over recent years, increasing the tax burden on dividend income. The table below shows the history of the allowance and its impact.
Tax Year
Dividend Allowance
Basic Rate Tax on Excess
2017/18 – 2017/18
£5,000
7.5%
2018/19 – 2022/23
£2,000
7.5%
2023/24
£1,000
8.75%
2024/25 – present
£500
8.75%
Frequently Asked Questions
How much tax do I pay on dividends in the UK in 2025/26?
The first £500 of dividends per tax year is tax-free (the Dividend Allowance). Above that, dividends are taxed at 8.75% if they fall in the Basic Rate band, 33.75% in the Higher Rate band, or 39.35% in the Additional Rate band. Dividends do not attract National Insurance contributions. Use the calculator above to find your exact dividend tax bill.
Do I need to complete a Self Assessment for dividend income?
Yes, if your dividend income exceeds £500 in a tax year, you must report it to HMRC via Self Assessment. If you have not previously registered for Self Assessment, you must do so by 5 October following the end of the tax year in which you received the dividends. HMRC may also contact you if they are aware of dividend income from company records.
Is it better to take salary or dividends as a company director?
For most owner-managed companies, a combination of a small salary (up to the NI Primary Threshold of £12,570) and dividends is more tax-efficient than salary alone. This is because dividends are taxed at lower rates and attract no NI. However, the optimal split depends on your total income, other income sources, pension contributions, and the company's Corporation Tax position. Always take professional advice before deciding.
Can I use my ISA allowance to shelter dividend income?
Yes. Dividends received within a Stocks and Shares ISA are completely tax-free and do not count towards the Dividend Allowance. The annual ISA allowance is £20,000 per person. For investors with significant dividend income, maximising ISA contributions is one of the most effective ways to reduce dividend tax liability.