How are dividends taxed in the UK?

Dividends are taxed after your other income (salary, rental, etc.). The first £500 of dividends each year is tax-free (the dividend allowance). Above that, dividends are taxed at 8.75% if they fall in your basic-rate band, 33.75% in the higher-rate band, and 39.35% in the additional-rate band. Because dividends sit on top of your other income, a higher salary pushes more dividends into higher tax bands.

What is the dividend allowance?

The dividend allowance is an annual tax-free amount for dividend income. For 2026/27 it is £500. It was reduced from £1,000 in 2023/24, and from £2,000 in 2022/23. All taxpayers get this allowance regardless of their rate band. The allowance still counts towards your income for band-placement purposes; it is simply taxed at 0%.

What is the optimal salary/dividend split for a company director?

Most owner-directors set their salary at the secondary (employer) National Insurance threshold of £9,100 for 2026/27. This avoids both employee NI (charged above £12,570) and employer NI (charged above £9,100). If your company qualifies for the Employment Allowance (up to £10,500 in 2026/27), taking salary at the personal allowance level of £12,570 may be more efficient as it uses your full income tax-free amount. Sole-director companies generally cannot claim the Employment Allowance from April 2020 onwards.

Do I need to complete a Self Assessment tax return for dividends?

Yes, if you receive dividends above the £500 allowance, you must register for Self Assessment and report them on a tax return. HMRC will not automatically collect dividend tax through PAYE. The Self Assessment deadline for online returns is 31 January following the end of the tax year. If your total dividends are between £500 and £10,000 and you are already in PAYE, you may be able to pay the tax through your tax code instead of filing a full return.

Are dividends subject to National Insurance?

No. Unlike salary, dividends are not subject to National Insurance contributions. This is one of the main tax advantages of drawing income from a limited company as dividends rather than salary. However, dividends are paid from company profits after corporation tax, so the combined tax burden depends on both corporation tax and income tax on dividends.

How does the £100,000 income trap affect dividends?

If your total income (including dividends) exceeds £100,000, your personal allowance is reduced by £1 for every £2 above that threshold, and is fully withdrawn at £125,140. This creates an effective 60% income tax rate on income between £100,000 and £125,140 for non-dividend income. For dividends falling in this band the effective rate is lower, but careful income planning (such as pension contributions to bring income below £100,000) can preserve the personal allowance.

Tax & Income

Dividend Tax Calculator

Calculate the tax you owe on UK dividends for 2026/27. Covers the £500 dividend allowance, all three rate bands, and the impact of your other income.

Updated April 2026

Your details

Other taxable income

Salary, rental income, or other non-dividend taxable income

Dividend income

Gross dividends received from UK or overseas companies

Company director tip: Setting your salary at £9,100 (secondary NI threshold) avoids both employee and employer NI contributions.

Your results

Tax on £30,000 of Dividend Income in 2026/27

Dividend tax due

£2,581

Taxable dividends

£29,500

Dividend income: £30,000
Dividend allowance used: £500
Effective rate: 8.6%

Breakdown

Gross dividend income: £30,000
Less: dividend allowance (tax-free): -£500
Taxable dividends: £29,500

Basic-rate band available after other income: £37,700

Band	Taxable Amount	Rate	Tax
Basic rate (8.75%)	£29,500	8.75%	£2,581
Total dividend tax			£2,581

Dividend tax rates in 2026/27

Dividends are taxed at lower rates than salary but sit on top of your other income for the purpose of determining which band applies. The first £500 of dividend income each year is covered by the dividend allowance and is tax-free. Above that, the rate depends on your total income:

Basic rate (income up to £50,270): 8.75%
Higher rate (£50,271–£125,140): 33.75%
Additional rate (above £125,140): 39.35%

The dividend allowance has been cut sharply in recent years, from £5,000 in 2017/18 to £2,000, then £1,000, and now £500. This makes tax planning increasingly important for investors and director-shareholders.

Dividends vs salary for company directors

Many director-shareholders of limited companies pay themselves a combination of a small salary (up to the National Insurance secondary threshold) and dividends. This is tax-efficient because dividends are not subject to National Insurance, and the lower dividend tax rates apply above the personal allowance.

The optimal split depends on your total income, whether you have other income sources, and the company's corporation tax position. The salary sacrifice calculator and income tax calculator can help model different scenarios.

Dividends inside an ISA or pension

Dividends received inside a Stocks & Shares ISA or pension are entirely free of dividend tax, regardless of amount. If you hold dividend-paying shares or funds, sheltering them inside an ISA is usually the most tax-efficient approach. You cannot reclaim dividend tax already paid before holding inside a wrapper, but future dividends are protected. Use the ISA allowance calculator to see how much room you have left this tax year.

Related calculators

Income Tax Calculator Salary Sacrifice Calculator Capital Gains Tax Calculator Self-Employed Tax Calculator

Related guides

UK Dividend Tax Guide

Frequently asked questions

Tax & Income Guide

How dividend tax works in the UK

Dividends are payments made from a company's profits to its shareholders. In the UK they are taxed separately from salary and other income, with their own rates and a small annual allowance. For limited company owners, directors, and investors, understanding how dividends interact with income tax is essential for planning an efficient remuneration strategy.

The £500 dividend allowance

Every UK taxpayer receives a dividend allowance each tax year — the amount of dividend income that can be received free of dividend tax. From April 2024 this stands at £500, reduced from £1,000 the previous year and £2,000 before that. The allowance applies regardless of your income level, and dividends within it are still counted when determining which tax band your remaining dividends fall into. If your total dividends are below £500 and you have no other reason to file Self Assessment, you typically do not need to declare them to HMRC.

Dividend tax rates by band

Dividends above the £500 allowance are taxed at rates that depend on your total income. Basic rate taxpayers pay 8.75%, higher rate taxpayers pay 33.75%, and additional rate taxpayers (income over £125,140) pay 39.35%. These rates are higher than the equivalent income tax rates, which reflects the fact that dividends come from company profits that have already been subject to corporation tax at 19–25%. Dividends sit on top of other income for band purposes — so a salary of £45,000 plus dividends of £10,000 means the top £5,270 of dividends are taxed at 33.75% rather than 8.75%.

Salary plus dividends from a limited company

Many contractors and small business owners pay themselves a low salary — often around the National Insurance secondary threshold (£9,100 in 2025/26) or the personal allowance (£12,570) — and top up with dividends to minimise combined income tax and National Insurance. Dividends are not subject to NI, which makes them more tax-efficient than additional salary for income above the NI threshold. However, the optimal salary level depends on whether your company can claim the Employment Allowance, your corporation tax position, and your personal income from other sources. It is worth modelling the full picture rather than assuming a fixed salary level is always best.

Reporting dividends to HMRC

If your total dividends exceed £500, or you are already required to file a Self Assessment return, you must declare all dividend income. HMRC may already know about dividends from UK listed companies via information reported by brokers, but you are still responsible for declaring them. Dividends from your own limited company are not automatically reported and must always be included in your return. Tax on dividends declared through Self Assessment is due by 31 January following the end of the relevant tax year, alongside any income tax and National Insurance owed.

Sheltering dividends in an ISA or pension

Dividends received within a Stocks and Shares ISA are completely free of dividend tax, no matter how large. Similarly, dividends inside a pension grow tax-free and are not subject to the £500 allowance limit. For investors who hold dividend-paying shares or funds, moving them into a Stocks and Shares ISA can eliminate dividend tax entirely and remove the need to declare the income. With the allowance now just £500, even modest dividend portfolios outside tax wrappers will generate a tax bill for higher-rate taxpayers — making annual ISA contributions a high priority for those with investment income.

Sources & methodology

Built and maintained by Tim, a personal finance enthusiast (not a financial adviser). Last reviewed April 2026. Rates and thresholds come from official UK government publications.

HMRC: Income Tax rates and allowances · Official rates, bands and thresholds
GOV.UK: National Insurance rates · Employee and employer NI rates
Scottish Government: Income Tax · Scottish income tax rates and bands

Figures are estimates only. This is not financial or tax advice. For help with your specific situation, speak to HMRC or a qualified adviser.