Dividend Tax UK 2025/26 — Rates, Allowance & How It Works
If you own shares — or run your own limited company — you may receive dividends: payments from a company’s profits, after Corporation Tax. Dividend tax is separate from Income Tax on salary, with its own allowance and rates. This guide explains how it works in 2025/26, and what changes from April 2026.
What is a dividend?
A dividend is your share of a company’s profits. Companies need not pay dividends — directors decide whether they can afford to, and how much. You might receive them from a listed company, your own limited company, or a stocks and shares ISA. For tax, a dividend is not salary: different rates apply, and it attracts no National Insurance. That is why the salary-versus-dividend question matters for directors — but taking everything as dividends is not that simple.
The dividend allowance: the first £500 is tax-free
In 2025/26, the first £500 of dividend income is tax-free — the dividend allowance, staying at £500 in 2026/27. There is a catch: the £500 allowance uses up part of your basic-rate band. It is not taxed, but it still counts towards the £50,270 basic-rate threshold, so it can push other dividends into the higher-rate band sooner. Dividends inside your unused Personal Allowance (£12,570) are also tax-free.
Dividend tax rates 2025/26
Once you have used your Personal Allowance and £500 allowance, dividends are taxed at rates depending on your Income Tax band. Dividends sit on top of your other income — salary first, then dividends — so your salary decides which band they fall into.
| Your Income Tax band | Dividend tax rate 2025/26 |
|---|---|
| Basic rate (total income up to £50,270) | 8.75% |
| Higher rate (total income £50,271 to £125,140) | 33.75% |
| Additional rate (total income over £125,140) | 39.35% |
There is no National Insurance on dividends, which is one reason the rates look lower than the Income Tax rates of 20%, 40% and 45%. But the company has already paid Corporation Tax on the profits — so the dividend has effectively been taxed twice.
Worked example 1 — salary £40,000 plus £5,000 of dividends
You earn £40,000 salary and receive £5,000 of dividends in 2025/26. Total income is £45,000, below the £50,270 threshold, so all taxable dividends fall in the basic-rate band. The first £500 is covered by the allowance: £0 tax. The remaining £4,500 is taxed at 8.75%: £4,500 × 8.75% = £393.75. That is the whole dividend tax bill; salary tax is dealt with through PAYE.
Worked example 2 — salary £45,000 plus £10,000 of dividends
Here dividends straddle two tax bands. You earn £45,000 salary and receive £10,000 of dividends in 2025/26. The basic-rate threshold is £50,270, so your salary leaves £5,270 of basic-rate band. The £500 allowance is tax-free, leaving £9,500 of taxable dividends. The first £5,270 falls in the basic-rate band: £5,270 × 8.75% = £461.13. The remaining £4,230 falls in the higher-rate band: £4,230 × 33.75% = £1,427.63. Total dividend tax: £461.13 + £1,427.63 = £1,888.76. Note the £500 allowance used up part of the basic-rate band: without it, £5,770 would have fallen there, not £5,270.
Dividends vs salary for company directors
If you run your own limited company, you can pay yourself salary, dividends, or a mix. Salary is deductible for the company, reducing its Corporation Tax bill — but it is taxed through PAYE and attracts National Insurance, for you and the company. It also counts as earnings for pensions and builds your National Insurance record. Dividends are not deductible — they come out of profits after Corporation Tax — but they attract no National Insurance and are taxed at the lower rates above. They do not count as earnings for pension tax relief, nor build your National Insurance record.
Most directors take a small salary — often up to the National Insurance threshold or Personal Allowance — and the rest as dividends, which usually gives a lower overall tax bill than all salary. But a company can only pay dividends out of profits actually made — paying one with no profits is unlawful and can be reclaimed. If in doubt, ask your accountant before declaring a dividend.
Dividends inside an ISA are tax-free
Shares held inside a Stocks & Shares ISA pay dividends completely tax-free — they do not use up your £500 allowance, and you do not report them. A portfolio paying £2,000 a year produces £2,000 tax-free inside an ISA; outside one, the same dividends would use up your £500 allowance and leave £1,500 taxable. Dividends in a pension are also tax-free while they stay there, but you pay Income Tax on most pension income when you take it out.
How to report dividends and pay the tax
How you report dividends depends on the amount. Up to £500 (within the allowance) and no other reason to file a return: you do not need to tell HMRC. £500 to £10,000: tell HMRC through your Personal Tax Account, or ask HMRC to change your tax code so the tax is collected through your salary. Over £10,000: you must file a Self Assessment tax return. Tax is due by 31 January after the tax year — so for 2025/26 dividends, by 31 January 2027. Late payment attracts interest and penalties.
The 2026/27 rise: dividend rates go up from 6 April 2026
Dividend tax rates rise from 6 April 2026. The allowance stays at £500.
| Your Income Tax band | 2025/26 | 2026/27 (from 6 April 2026) |
|---|---|---|
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% (unchanged) |
The rise is worth planning around: a dividend taken before 6 April 2026 locks in the lower 2025/26 rates — but only if the company has the profits to pay it. On worked example 2 above, the same £9,500 of taxable dividends in 2026/27 would cost £5,270 × 10.75% (£566.53) plus £4,230 × 35.75% (£1,512.23) — £2,078.76, about £190 more. Do not declare a dividend purely for the rate change without checking the company’s profits and your tax bill with your accountant.
What to check now
- How much dividend income will you receive in 2025/26 — is it over the £500 allowance?
- If you are a director, has the company made enough profit to pay the dividends you plan?
- Are any dividend-paying shares held outside an ISA? Could they move inside your £20,000 ISA allowance?
- Do you need to register for Self Assessment — for example, if dividends are over £10,000?
- If you are planning a large dividend, would taking it before 6 April 2026 save tax at the lower rates?
Frequently asked questions
How much dividend tax do I pay in 2025/26?
The first £500 is tax-free. After that, dividends are taxed at 8.75% in the basic-rate band, 33.75% higher-rate, and 39.35% additional-rate. Dividends inside an ISA, or inside unused Personal Allowance, are tax-free too.
Do I pay National Insurance on dividends?
No. Dividends attract no National Insurance, for you or the company. That is one reason they can be cheaper than salary for directors — but the company has already paid Corporation Tax on the profits first.
How do I report dividends to HMRC?
Over £500, you need to tell HMRC. Between £500 and £10,000, use your Personal Tax Account or ask HMRC to adjust your tax code. Over £10,000, file a Self Assessment tax return. Tax on 2025/26 dividends is due by 31 January 2027.
Are dividends tax-free inside an ISA?
Yes. Dividends inside a Stocks & Shares ISA are completely tax-free — they do not use up your £500 allowance and you do not report them. Outside an ISA, the same dividends would be taxable above the allowance.
Are dividend tax rates rising?
Yes. From 6 April 2026, the basic rate rises from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. The additional rate stays at 39.35% and the £500 allowance at £500. Taking a large dividend before then may save tax — but check the company’s profits and your overall tax position first.
This article gives general information about UK tax, not personal financial or tax advice. Tax rules can change, and your situation may be different. Check GOV.UK or speak to a qualified accountant before you act.
