What tax do you pay on dividends?

What is a dividend?

A dividend is a payment of profits from a company to its shareholders. Under the law, dividends can only be paid if a company has sufficient profits to be able to do so. The dividend is taken out of profits after a company has paid business expenses and liabilities, including corporation tax.

The amount of dividends received by shareholders is generally dependent on the percentage of the company that they own, and the class of share they own. For example, in a company with a single class of shares, a shareholder owning 20% of a company can be allocated 20% of a dividend distribution. 

For directors of owner-managed businesses, where they are the only shareholder and director, taking a combination of dividends and salary is often the most more tax efficient way to extract profits from the company. Dividends are subject to slightly lower tax rates than salary income, although the difference used to be much wider. In addition, National Insurance Contributions (NICs) are not payable on dividends. 

How much tax do you pay on dividends?

When it comes to determining the amount of tax on dividend income, the starting point is to work out your total taxable income. Your taxable income is all your sources of income added together, deducting any allowable deductions  and reducing this amount by any available personal allowance.

Dividends are kept separate in the income tax computation because they are taxed at different rates to other income, including employment income and savings interest.

You are also entitled to a dividend allowance, which is currently £500 (2026/27). This applies to the first £500 of your taxable dividend income. Dividend income within this dividend allowance is taxed at 0%.

After the above deductions, you must pay tax on any further dividends. The amount of tax you pay on dividends is based on your tax band for your other income.

As dividend tax rates are lower than for other types of income, many limited company directors extract at least some of their profits as a dividend.

Dividend tax rates

Dividend tax rates are as follows:

	2026/27	2025/26
Basic rate taxpayer	10.75%	8.75%
Higher rate taxpayer	35.75%	33.75%
Additional rate taxpayer	39.35%	39.35%

Income tax bands for 2026/27

A salary taken by a limited company director is taxed according to standard income tax rates i.e. not savings or dividend income tax rates, and from 2027/28, not property income tax rates. 

For the tax year ending 5th April 2027, most taxpayers benefit from a personal allowance of £12,570. This allowance is taken against your income and the balance of your non- savings, non-dividend (and from 2027/28, non-property) income is then subject to tax at the following rates. 

England, Wales and Northern Ireland

Band	Taxable Income	Tax Rate
Basic rate taxpayer	£12,570 to £50,270	20%
Higher rate taxpayer	£50,271 to £125,140	40%
Additional rate taxpayer	Over £125,140	45%

Scotland

Band	Income Threshold	Tax Rate
Starter rate	Over £12,570 - £16,537	19%
Basic rate	Over £16,538 - £29,526	20%
Intermediate Rate	Over £29,527 - £43,662	21%
Higher Rate	Over £43,663 - £75,000	42%
Advanced Rate	Over £75,001 - £125,140*	45%
Top Rate	Over £125,140*	48%

*The above assumes the individual is in receipt of the standard UK Personal Allowance. Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.

Different rates and allowances apply for savings income and dividend income UK-wide and, from 2027/28, a different rate will also apply for property income UK-wide.

How much tax will I pay on dividends in 2025/26?

To demonstrate the tax you may pay on dividends, we have included a couple of examples below.

Example 1

An individual received a dividend of £500 in 2025/26. The dividend falls within the dividend allowance and is therefore not taxable.

Example 2

An individual receives a dividend of £10,000 in 2023/24 and has other income of £10,500.

Other income	£10,500
Less: personal allowance	(£10,500)
Dividend income	£10,000
Remaining personal allowance	(£2,250)
Less: dividend allowance	(£500)
Taxable dividend income	£7,250

The £7,250 dividend income is taxable at the dividend basic rate (8.75%). The tax on the dividend is £634. 

If you are a business owner who is concerned to minimise your liability to income tax and NICs, planning dividend extraction should be considered with your accountant to maximise tax efficiencies. 

Dividend tax calculator

To calculate the tax to pay on your dividends, you need to keep in mind:

• the tax band you are in
• income tax personal allowance of £12,570 (2025/26 and 2026/27)
• dividends tax-free allowance of £500 (2024/25) (2025/26 and 2026/27)

How to pay your dividend tax

If your dividends are within the dividend allowance, you do not need to tell HMRC.

If you earn between £500 and £10,000 in dividends and do not already file a self-assessment tax return for other reasons, you can contact HMRC to either: 

• ask for a change to your PAYE tax code to cover the tax you owe, or  
• register for self-assessment and report the dividend income on a tax return. 

To contact HMRC you can either use the HMRC online service or call the HMRC income tax helpline on 0300 200 3300. 

If you earn over £10,000 in dividends, you must file a self-assessment tax return. If you are not already registered for self-assessment, you must do so by 5th October after the tax year in which the dividend payments were received. 

What other taxes do I pay on shares?

If you sell shares, you might need to pay capital gains tax (CGT) on any profits that you make.

For gains below the CGT annual exempt amount (AEA), you do not need to pay tax. In 2025/26 and 2026/27, the AEA is £3,000. 

Any gains you make above the AEA are taxed at 18% if the gains fall into the basic rate tax band and 24% if they fall into the higher rate tax band.  

If you meet the qualifying conditions for Business Asset Disposal Relief (BADR), you may be able to pay a lower rate of CGT on the sale of shares – 14% for 2025/26 and 18% for 2026/27. 

You may also have stamp duty or stamp duty reserve tax to pay on any purchase of shares. 

Need advice on dividends tax?

At TaxAssist Accountants Goldenacre we can provide advice on dividends and tax planning. To find out more about our services and to book a free initial consultation, call 0131 322 3988 or fill in our online enquiry form.

Last updated: 5th March 2026