Dividend Tax Calculator 2025/26

What is the dividend allowance for 2025/26?

The dividend allowance for 2025/26 is £500. This means the first £500 of dividend income you receive in the tax year is tax-free, regardless of your income tax band. The allowance was reduced from £1,000 in 2023/24 and from £2,000 in 2022/23, significantly increasing the tax burden on company directors and investors who rely on dividend income.

What are the dividend tax rates?

Dividend tax rates for 2025/26 are 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. These rates apply to dividend income above the £500 allowance. Dividends are taxed on top of your other income, so your salary and other earnings determine which band your dividends fall into.

How are dividends taxed on top of other income?

Dividends sit on top of your other income when calculating tax. HMRC adds your salary, rental income, and other non-dividend income first, then layers dividend income on top. If your non-dividend income uses up the basic rate band (£37,700 above the £12,570 personal allowance in 2025/26), all your dividends will be taxed at the higher rate of 33.75%. This is why the salary-dividend split matters so much for company directors.

Is it more tax-efficient to take dividends or salary?

For most company directors, a combination of a small salary and dividends is more tax-efficient than salary alone. A common strategy is to take a salary up to the primary NI threshold (£12,570 for 2025/26) and the remainder as dividends. This avoids employee and employer National Insurance on the dividend portion. However, the optimal split depends on your total income, other earnings, and whether you need to maintain NI qualifying years.

Do I need to pay corporation tax before taking dividends?

Yes. Dividends can only be paid from company profits after corporation tax has been deducted. For example, if your company earns £100,000 in profit and pays £19,000 in corporation tax (at the 19% small profits rate), the maximum available for dividends is £81,000. This means the effective tax rate on money extracted via dividends includes both corporation tax and personal dividend tax, which your total tax calculation should reflect.

What about the personal allowance and dividends?

You can use your £12,570 personal allowance against dividend income if you have no other income, or if your other income does not fully use the allowance. Dividends covered by the personal allowance are tax-free. However, for company directors with a salary, the personal allowance is typically used against salary first. If your total income exceeds £100,000, your personal allowance is gradually withdrawn at a rate of £1 for every £2 of income above that threshold.

How do I report dividend income?

You report dividend income through your Self Assessment tax return. If your only income is from dividends and it is below £10,000 (including the allowance), you may be able to report through HMRC's online service without filing a full return. Company directors with dividends above the allowance will need to register for Self Assessment and file by 31 January following the end of the tax year.