Dividend Tax Calculator 2025/26

Dividend Tax Rates 2025/26

Dividends are payments made to shareholders from company profits. In 2025/26, the first £500 of dividend income is tax-free (the dividend allowance, reduced from £1,000 in 2024/25 and £2,000 in 2023/24). Above this allowance, dividend tax rates depend on your total income.

Dividend Tax Rates

Basic rate (up to £50,270 total income): 8.75% on dividends above the allowance. Higher rate (£50,270–£125,140): 33.75%. Additional rate (above £125,140): 39.35%.

Director Salary and Dividends Strategy

Many limited company directors pay themselves a small salary (up to the NI threshold at £12,570) and take most income as dividends. This is tax-efficient because dividends are not subject to NI. However, the shrinking dividend allowance has reduced the advantage in recent years.

Dividend Tax vs Income Tax

Dividend tax rates are lower than equivalent income tax rates. A higher rate taxpayer pays 40% income tax but only 33.75% on dividends — a saving of 6.25 percentage points. For company owners, this makes dividend extraction more tax-efficient than salary above the basic rate band.