How do I pay dividend tax — through payroll or Self Assessment?

Dividend tax is not collected through PAYE. You must report dividend income on a Self Assessment tax return and pay any tax due by 31 January following the end of the tax year. HMRC may also adjust your PAYE tax code to collect small amounts of dividend tax through your salary, but for larger dividend amounts, Self Assessment is required.

Dividend Allowance Calculator 2025/26

Q: What are the dividend tax rates for 2025/26?

Dividend tax rates for 2025/26 are: 8.75% basic rate (dividends falling in the basic rate band), 33.75% higher rate (dividends in the higher rate band £50,271–£125,140), and 39.35% additional rate (dividends above £125,140). These rates are lower than the equivalent income tax rates because dividends come from company profits that have already been taxed via corporation tax.

Q: Do I need to report dividends under £500?

If your total dividend income is £500 or less AND your total income is below the reporting threshold, you typically do not need to file a Self Assessment return just for dividends. However, HMRC guidance recommends checking your specific position. If you normally file Self Assessment, include all dividend income regardless of amount.

Q: Does the personal allowance apply to dividends?

The personal allowance (£12,570 for 2025/26) applies to your total income. If non-dividend income doesn't fully use your personal allowance, the remaining allowance offsets dividends first, making a portion tax-free. The dividend allowance (£500) is then applied to the remaining dividends. The order matters: personal allowance → dividend allowance → taxable dividends.

Q: What happens to my personal allowance if I earn over £100,000?

If your total income exceeds £100,000, your personal allowance is reduced by £1 for every £2 earned above £100,000. It is fully withdrawn at £125,140. This creates an effective 60% marginal tax rate on income between £100,000 and £125,140 (income tax + lost personal allowance). Dividends in this band are subject to 33.75% higher rate dividend tax, but the lost personal allowance effect on other income is significant.

Q: Are dividends from ISAs tax-free?

Yes. Dividends received within an ISA (Individual Savings Account) wrapper are completely tax-free and do not count toward your £500 dividend allowance. This makes ISAs extremely tax-efficient for dividend investors. The annual ISA allowance is £20,000 for 2025/26.

Q: What is the effective total tax rate on dividends including corporation tax?

When you include corporation tax paid by the company, the combined effective rate is higher. For a basic rate taxpayer receiving dividends from a company paying 19% CT: CT 19% + (8.75% × 81%) = 19% + 7.09% = ~26% total. For a higher rate taxpayer: CT 25% + (33.75% × 75%) = 25% + 25.31% = ~50% total. This is why salary plus dividends planning matters.

Calculate Your Dividend Tax for 2025/26

Enter your dividend income and other taxable income. The calculator applies HMRC's ordering rules: non-dividend income fills bands first, then the dividend allowance, then remaining dividends are taxed at the appropriate rate.

Total Dividend Income (£)

Other Taxable Income (salary, pension, etc.) (£)

Your Dividend Tax Breakdown 2025/26

Based on HMRC 2025/26 rates for England, Wales and Northern Ireland. Estimates only — consult HMRC or an adviser for personal tax.

£0
Dividends Within Allowance (tax-free)

£0

Dividends at Basic Rate (8.75%)

£0

Dividends at Higher Rate (33.75%)

£0

Dividends at Additional Rate (39.35%)

£0
Total Dividend Tax

Effective Dividend Tax Rate

£0

Personal Allowance Used by Other Income

£0

Total Taxable Income

£0

Dividends After Tax

How Dividend Tax Works in 2025/26

Dividends are taxed differently from salary or savings income. HMRC has a specific ordering for how income fills your tax bands, which affects how much dividend tax you pay.

The HMRC Ordering Rules

Non-savings, non-dividend income (salary, pension, rental) fills the personal allowance and basic rate band first
Savings income fills the next available band space
Dividend income sits on top of all other income
The first £500 of dividends is covered by the dividend allowance (tax-free)
Remaining dividends are taxed at 8.75%, 33.75%, or 39.35% depending on the band occupied

Example — £30,000 salary + £10,000 dividends:
Salary fills: £12,570 PA (tax-free) + £17,430 at basic rate
Basic rate band remaining: £50,270 − £30,000 = £20,270
Dividend allowance: £500 tax-free
Remaining dividends: £9,500 — all in basic rate band → £9,500 × 8.75% = £831.25 tax

2025/26 Dividend Tax Reference

Income Level	Dividend Tax Rate	Notes
Within £500 dividend allowance	0%	Tax-free regardless of band
Basic rate band (up to £50,270)	8.75%	After filling with other income
Higher rate band (£50,271–£125,140)	33.75%
Additional rate (above £125,140)	39.35%	No personal allowance above £125,140

Personal allowance of £12,570 is tapered above £100,000 total income (reduced by £1 for every £2 over £100k, fully withdrawn at £125,140).

Frequently Asked Questions

What is the dividend allowance for 2025/26?

The dividend allowance for 2025/26 is £500. The first £500 of dividend income is completely tax-free, regardless of your income tax band. This reduced from £1,000 in 2023/24 and £2,000 before that. Dividends above £500 are taxed at your dividend tax rate.

What are the dividend tax rates for 2025/26?

Dividend tax rates for 2025/26: 8.75% basic rate (dividends in the basic rate band up to £50,270), 33.75% higher rate (£50,271–£125,140), and 39.35% additional rate (above £125,140). These are lower than equivalent income tax rates because dividends come from profits already taxed via corporation tax.

Do dividends fill tax bands after salary?

Yes. HMRC's rules specify that non-dividend income (salary, pension, rental) fills tax bands first. Dividends are then stacked on top. If you earn £40,000 salary, you have £10,270 of basic rate band remaining. Dividends up to that amount are taxed at 8.75%, and excess at 33.75%.

Do I need to report dividends under £500?

If your total dividend income is £500 or less and your total income is below the Self Assessment threshold, you may not need to file a return just for dividends. However, if you normally file Self Assessment, include all dividend income regardless of amount. HMRC may also issue a Simple Assessment for some taxpayers with small dividend amounts.

Does the personal allowance apply to dividends?

The personal allowance (£12,570) applies to your total income. If non-dividend income doesn't fully use your allowance, the remainder offsets dividends. For example, if you have no other income and receive £15,000 dividends, the first £12,570 is covered by your personal allowance, then £500 by the dividend allowance, leaving £1,930 taxable at 8.75%.

What happens to my personal allowance if I earn over £100,000?

Your personal allowance is reduced by £1 for every £2 of total income above £100,000. It is fully withdrawn at £125,140. This creates an effective 60% marginal rate on income between £100,000 and £125,140. Making pension contributions can restore lost personal allowance.

Are dividends from ISAs tax-free?

Yes. Dividends received within an ISA wrapper are completely tax-free and do not count toward your £500 dividend allowance. This makes ISAs extremely efficient for dividend investors. The annual ISA allowance is £20,000 for 2025/26.

Do I pay NI on dividends?

No. National Insurance contributions are not payable on dividend income. This is one of the main reasons limited company directors choose to take income as dividends rather than additional salary — dividends are taxed only via income tax at the lower dividend rates, not NI.

Can I transfer shares to my spouse to use their dividend allowance?

Yes — this is a legitimate tax planning strategy. If your spouse has unused dividend allowance and basic rate band, transferring shares allows dividends to be taxed at a lower rate. However, the transfer must be genuine and care is needed around settlements legislation (Section 620 ITTOIA 2005). Seek professional advice before implementing this strategy.

How do I pay dividend tax?

Dividend tax is not collected through PAYE. You must report dividend income on a Self Assessment tax return and pay any tax due by 31 January following the end of the tax year. For smaller amounts, HMRC may adjust your PAYE tax code to collect dividend tax through your salary, but for larger dividends, Self Assessment is always required.

Are foreign dividends taxed the same as UK dividends?

Foreign dividends are generally subject to the same UK dividend tax rates and the £500 allowance. Foreign withholding tax may have been deducted at source, and you can claim Foreign Tax Credit Relief to avoid double taxation. Declare foreign dividends on the Foreign pages of your Self Assessment return.

What is the effective total tax rate on dividends including corporation tax?

Including corporation tax paid by the company: basic rate taxpayer receiving dividends from a company paying 19% CT: ~26% combined effective rate. Higher rate taxpayer: ~50% combined. This combined burden is why salary/dividend mix planning matters for limited company directors.

Mustafa Bilgic
Financial Content Writer | Tax & Investment Specialist
Updated: 10 March 2026 | Published: 1 January 2025