UK Dividend Tax 2025-26
A complete guide to the £500 dividend allowance, tax rates of 8.75%, 33.75% and 39.35%, who pays dividend tax, how it interacts with income tax bands, and how to report through Self Assessment.
Contents
Dividend Allowance £500 for 2025/26
The dividend allowance is the amount of dividend income you can receive each tax year without paying dividend tax. For 2025/26, this is £500. Dividends above this threshold are subject to dividend tax at rates that depend on your income tax band.
| Tax Year | Dividend Allowance |
|---|---|
| 2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 | £500 |
| 2025/26 | £500 |
Dividend Tax Rates 2025/26
Once you have used your £500 dividend allowance, any additional dividend income is taxed at the following rates for 2025/26:
| Income Band | Total Income | Dividend Tax Rate |
|---|---|---|
| Dividend allowance | First £500 of dividends | 0% |
| Basic rate | Up to £50,270 total income | 8.75% |
| Higher rate | £50,271 to £125,140 total income | 33.75% |
| Additional rate | Over £125,140 total income | 39.35% |
Who Pays Dividend Tax
You may be liable to pay dividend tax if you receive income from:
- Shares in a company — when a company distributes profits to shareholders
- Equity funds and investment trusts — income distributions from unit trusts and OEICs held outside an ISA or pension
- Your own limited company — if you are a company director or shareholder drawing dividends from your business
- Employee share schemes — some employee share scheme awards may produce dividend income
You do not pay dividend tax on:
- Dividends received within a Stocks and Shares ISA
- Dividends received within a pension (SIPP, workplace pension)
- The first £500 of dividends (covered by the allowance)
How Dividends Interact with Income Tax Bands
Dividends sit on top of your other income. HMRC stacks income in the following order when determining which tax band applies:
- Non-savings income (employment income, self-employment, rental income)
- Savings income (bank interest)
- Dividend income
This means your salary or other income fills the tax bands first, and dividends are then added on top. The personal allowance of £12,570 applies to your non-savings income first.
Example: Basic Rate Taxpayer with Dividends
Sarah earns a salary of £38,000 and receives £5,000 in dividends from company shares in 2025/26.
| Salary | £38,000 |
| Less: Personal allowance | £12,570 |
| Taxable salary | £25,430 |
| Dividend income | £5,000 |
| Less: Dividend allowance | £500 |
| Taxable dividends | £4,500 |
| Remaining basic rate band (£50,270 - £38,000 = £12,270) | — |
| All £4,500 taxable dividends fall in basic rate band | — |
| Dividend tax at 8.75% | £393.75 |
Example: Straddling Two Bands
James earns £48,000 salary and receives £8,000 in dividends in 2025/26. His basic rate band extends to £50,270.
| Remaining basic rate band (£50,270 - £48,000 = £2,270) | £2,270 |
| Dividends in basic rate band (£2,270 minus £500 allowance = £1,770) | £1,770 at 8.75% = £154.88 |
| Dividends in higher rate band (£8,000 - £500 - £2,270 = £5,230) | £5,230 at 33.75% = £1,765.13 |
| Total dividend tax | £1,920.01 |
Self Assessment Requirement
Whether you need to file a Self Assessment tax return depends on the amount of dividend income you receive and your other income:
| Situation | Self Assessment Required? |
|---|---|
| Dividend income under £500 (within allowance) | No (unless you need SA for other reasons) |
| Dividend income £500 to £10,000, basic rate taxpayer | HMRC may adjust your tax code instead; contact HMRC |
| Dividend income over £10,000 | Yes — register for Self Assessment |
| Dividend income creating a higher or additional rate liability | Yes |
| Company director receiving dividends | Yes (typically) |
Self Assessment Deadlines
- 5 October: Deadline to register for Self Assessment for the previous tax year
- 31 October: Paper tax return filing deadline
- 31 January: Online tax return filing deadline and payment deadline
- 31 July: Second payment on account (if applicable)
Company Directors and Salary vs Dividends
Many owner-directors of limited companies adopt a tax-efficient remuneration strategy that combines a low salary with dividend payments. This approach can reduce overall tax and National Insurance (NI) costs significantly compared to taking all income as salary.
Why Dividends Can Be More Tax-Efficient Than Salary
| Income Type | Income Tax Rate (Higher Rate) | National Insurance | Total Deduction (Higher Rate) |
|---|---|---|---|
| Salary (above NI threshold) | 40% | 2% employee + ~13.8% employer | ~55.8% total |
| Dividends (higher rate) | 33.75% | 0% | 33.75% |
Typical Director Strategy (2025/26)
A common approach is to take a salary equal to the National Insurance primary threshold (£12,570 for 2025/26, making it NI-free and retaining State Pension eligibility) and then draw the remainder of income as dividends up to the higher rate threshold (£50,270). This keeps dividend tax at 8.75% rather than the higher 33.75%.
IR35 Considerations
IR35 (the off-payroll working rules) is one of the most important considerations for contractors operating through personal service companies (PSCs). If your engagement with a client is deemed to be one of employment (rather than genuine self-employment), the income may be treated as employment income, subject to income tax and National Insurance rather than Corporation Tax and dividend tax.
Who Does IR35 Affect?
IR35 typically affects:
- Contractors working through their own limited companies (PSCs)
- Those providing services to a single or main client
- Workers who would be employed by the client if not working via a company
IR35 Status Determination (Since April 2021)
| Client Size | Who Determines IR35 Status? |
|---|---|
| Large or medium client (public sector or private sector) | The end client (hirer) |
| Small private sector client | The contractor's own company (PSC) |
Dividends in ISAs — Tax-Free
Holding shares and funds within a Stocks and Shares ISA completely shelters dividend income from dividend tax, no matter how large the dividends are. This makes ISAs one of the most powerful tax wrappers for investors who hold dividend-paying investments.
| ISA Type | Annual Allowance 2025/26 | Dividend Tax on Income |
|---|---|---|
| Stocks and Shares ISA | £20,000 (shared with all ISA types) | 0% |
| Cash ISA | Up to £20,000 | N/A (no dividends) |
| Lifetime ISA (LISA) | Up to £4,000 (counts toward £20,000) | 0% |
Worked Calculation Examples
Example: Additional Rate Taxpayer
Dr. Ahmed earns £160,000 as a consultant and receives £15,000 in dividends from shares he owns outside an ISA.
| Total dividend income | £15,000 |
| Less: Dividend allowance | £500 |
| Taxable dividends | £14,500 |
| Tax rate (additional rate — income over £125,140) | 39.35% |
| Dividend tax payable | £5,705.75 |
Dr. Ahmed must file a Self Assessment return and pay by 31 January 2027.
Frequently Asked Questions
The dividend allowance for 2025/26 is £500. This means you can receive up to £500 in dividend income without paying any dividend tax, regardless of your income tax band. This was reduced from £1,000 in 2023/24 and £2,000 in 2022/23.
Dividend tax rates for 2025/26 are: 8.75% for basic rate taxpayers (income up to £50,270), 33.75% for higher rate taxpayers (£50,271 to £125,140), and 39.35% for additional rate taxpayers (income over £125,140). These apply to dividends above the £500 allowance.
You must register for Self Assessment if your total dividend income exceeds £10,000, or if your dividends above the £500 allowance create a tax liability and you are a higher rate taxpayer. Company directors who draw dividends typically need to file Self Assessment. For smaller dividend amounts as a basic rate taxpayer, HMRC may adjust your tax code.
Dividends are added on top of your other income (salary, rental income, etc.). Your other income fills the tax band first. If your salary is £45,000, your dividends sit on top. The first £5,270 of dividends brings you to £50,270 (basic rate limit) and is taxed at 8.75%; any further dividends are taxed at 33.75%.
Many owner-directors take a low salary (up to the NI threshold) and supplement with dividends, since dividend tax rates are lower than combined income tax and NI on salary. However, this is subject to IR35 rules and Corporation Tax considerations. Professional advice is recommended before adopting this strategy.
No. Dividends received within a Stocks and Shares ISA are completely free from dividend tax, no matter how large. The ISA annual allowance for 2025/26 is £20,000 shared across all ISA types. Investing in dividend-paying shares through an ISA is one of the most tax-efficient ways to receive investment income.
Register with HMRC for Self Assessment, then file your tax return each year. Online returns are due by 31 January. Declare all dividend income in the return. HMRC calculates the tax and you pay by 31 January. If your tax bill exceeds £1,000 you may also need to make payments on account in January and July.