What is the dividend tax rate in the UK for 2025/26?

UK dividend tax rates for 2025/26 are: 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). You also get a tax-free dividend allowance of £500. Dividends are taxed after your other income fills up the tax bands, so the rate depends on your total income.

What is the most tax-efficient way to pay myself as a director?

The most common tax-efficient strategy is to pay yourself a salary of £12,570 (the personal allowance) and take the rest as dividends. This avoids income tax on your salary, minimises National Insurance, and dividends are taxed at lower rates than salary. The Employment Allowance (£10,500) can offset employer NI on the salary.

How does the £500 dividend allowance work?

The first £500 of dividend income is tax-free regardless of your tax band. This was reduced from £1,000 in 2023/24 and £2,000 in 2022/23. The allowance does not reduce your total income for the purposes of determining which tax band applies — it simply means the first £500 of dividends are charged at 0%.

Do I pay National Insurance on dividends?

No. Dividends are not subject to National Insurance — neither employee NI nor employer NI. This is one of the main reasons the salary + dividends strategy is more tax-efficient than taking all income as salary. Salary above £12,570 is subject to 8% employee NI (plus 2% above £50,270) and 15% employer NI above £5,000.

What corporation tax rate applies to my company profits?

For 2025/26: profits up to £50,000 are taxed at 19% (small profits rate). Profits over £250,000 are taxed at 25% (main rate). Between £50,000 and £250,000, marginal relief applies, giving an effective rate between 19% and 25%. These thresholds are divided by the number of associated companies.

Dividend Tax Calculator 2025/26

See how UK dividends are taxed on top of your income. Find the optimal director salary+dividend mix, compare total tax cost, and plan your company extraction strategy. 2025/26 HMRC rates.

Calculate dividend tax based on your total income and dividends received

Annual salary / employment income

Gross salary before tax and NI

Total dividend income

Dividends received in the tax year

Tax code

Found on your payslip. Default 1257L = £12,570 allowance

Other income (rental, interest, etc.)

Non-dividend, non-employment income

Scottish taxpayerScottish rates apply to employment income only. Dividend rates are UK-wide.

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How to Use This Calculator

Dividend Tax tab

The default tab. Enter your annual salary or employment income, total dividend income, and tax code (default 1257L). The calculator shows how dividends stack on top of your other income, which bands they fall into, and how much dividend tax you owe at 8.75%, 33.75%, or 39.35%. Expand "More options" for other income sources and Scottish taxpayer status.

Director's Salary + Dividends tab

For limited company directors. Enter your company profit and desired annual income. The calculator finds the optimal salary (£12,570 personal allowance) and calculates the remaining amount as dividends. See corporation tax, employer NI (with Employment Allowance), personal tax, and total take-home. Includes a side-by-side comparison against taking all income as salary.

Dividend vs Salary tab

Compare the total tax cost of extracting money as all salary versus the optimal salary+dividend mix. Enter company revenue, expenses, and desired take-home. See exactly how much you save with the dividend strategy — including corporation tax, employer NI, employee NI, income tax, and dividend tax.

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The Formula

UK dividends are taxed using a stacking method — they sit on top of your other income in the tax bands:

Step 1: Calculate taxable non-dividend income
Taxable income = Salary + Other income − Personal allowance (£12,570)

Step 2: Apply the dividend allowance
Taxable dividends = Total dividends − £500 allowance

Step 3: Stack dividends on top of other income
Basic rate band remaining = £37,700 − taxable non-dividend income
Dividends in basic band × 8.75%
Dividends in higher band × 33.75%
Dividends in additional band × 39.35%

Total dividend tax = Sum of all band taxes

The key insight: dividends are not subject to National Insurance. This is why the salary+dividend strategy saves money compared to all salary — you avoid both employee NI (8%/2%) and employer NI (15%) on the dividend portion.

Corporation tax is paid on the company profits before dividends are distributed: 19% for profits up to £50,000, rising to 25% for profits over £250,000, with marginal relief in between.

Example

Tom — IT Contractor, 38, London

Tom runs a limited company with £80,000 annual profit. He has no other income and claims the Employment Allowance. What is the most tax-efficient way to extract his income?

Optimal: Salary £12,570 + Dividends

Salary (personal allowance)£12,570

Employer NI (after Employment Allowance)£0

Profit after salary£67,430

Corporation tax (19%)£12,812

Retained profit (available as dividends)£54,618

Personal tax on salary + dividends

Income tax on salary£0

Employee NI on salary£0

Dividend allowance£500 tax-free

Dividends in basic band (8.75%)£3,254

Dividends in higher band (33.75%)£5,050

Total dividend tax£8,304

Tom’s total tax: £12,812 corporation tax + £8,304 dividend tax = £21,116 total. His take-home is approximately £58,884 — an effective combined rate of about 26.4%.

If Tom took the full £80,000 as salary instead, he would pay significantly more in income tax and National Insurance. The salary+dividend strategy typically saves £5,000–£10,000 per year for contractors in this income range.

FAQ

When do I need to report dividend income to HMRC? ▼

If your dividend income exceeds £500 (the dividend allowance), you must report it to HMRC. If your total dividends are under £10,000, you can call HMRC and they’ll adjust your tax code. Over £10,000 and you must file a Self Assessment tax return. Directors of limited companies almost always need to file Self Assessment.

Can I pay myself dividends if my company has no profit? ▼

No. Dividends can only be paid from retained profits (after corporation tax). Paying dividends without sufficient profits is an illegal dividend and can result in the director being personally liable to repay the amount. Always check your company’s profit and loss account before declaring dividends.

Is the £12,570 salary still optimal for 2025/26? ▼

Yes, for most single-director companies. Setting salary at £12,570 uses the full personal allowance (no income tax), and with the Employment Allowance (£10,500), the employer NI cost is minimal or zero. Some accountants suggest a lower salary at the NI secondary threshold, but the Employment Allowance makes £12,570 optimal in most cases.

What happens to my personal allowance above £100,000? ▼

Your personal allowance is reduced by £1 for every £2 of income above £100,000. It reaches zero at £125,140. This creates an effective 60% marginal tax rate between £100,000 and £125,140. If your total income is in this range, consider making pension contributions to bring income below £100,000 and restore the full allowance.

Do Scottish taxpayers pay different dividend tax? ▼

No. Scottish income tax rates (starter, basic, intermediate, higher, advanced, top) apply only to non-savings, non-dividend income such as employment and pension income. Dividend tax rates (8.75%, 33.75%, 39.35%) are the same across the entire UK. However, Scottish rates may affect how much of the basic rate band is left for dividends.

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