Understanding the tax rate for dividends in the UK is essential for anyone running a limited company, investing in shares, or simply planning their personal finances. Well, you are not alone. Tax rate for dividends UK rules change more often than most people expect, and it can be confusing to know exactly how much you’ll pay. This is especially true with ongoing adjustments to allowances and thresholds.
If you take dividends as a company director, invest in shares, or want to understand how dividend tax works, it is important to know how the current rates affect your income. It is important to know what the new rates mean for your income.
In this guide, we will break down the current dividend taxation rules and explain what tax rate for dividends applies to you. This will also help you understand how dividends fit into your overall tax planning.
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What Are Dividends?
Dividends are the portions of a company’s post-tax profit paid out to shareholders. This is a common method for business owners to take income. Dividends are taxed at specific rates, which differ from the general income tax, and have their own tax-free allowance.
How Are Dividends Taxed?
You don’t pay any tax on dividends that fall within your unused personal allowance, which for 2025/2026 is £12,570. However, it is reduced if your income is over £100,000.
Additionally, you have a separate Dividend Allowance (zero-rate tax band) each tax year, which is £500 for 2025/2026. You only pay tax on dividend income exceeding both your available personal allowance and the dividend allowance.
Dividends are not liable for National Insurance contributions (NICs).
What Is the Tax Rate for Dividends UK for 2025/2026?
The tax rate you pay on dividends above your allowance depends on your highest income band. Your total income includes salary, pension and dividends.
| Income Tax Band | Total Taxable Income Range | Dividend Tax |
| Basic Rate | £12,571 to £50,270 | 8.75% |
| Higher Rate | £50,271 to £125,140 | 33.75% |
| Additional Rate | Over £125,140 | 39.35% |
(Note: These bands apply after deducting your personal allowance and include all sources of taxable income.)
What are the Other Tax Allowances And Exemptions for 2025/2026?
There are several other allowances and exemptions, except for the dividend allowance for the 2025/26 tax year. They are explained in detail below:
Personal Allowance
The standard personal allowance is £12,570. It is the amount of income you can earn from all sources, like salary or pension, before any income is due. This allowance is reduced to £1 for every £2 of income over £100,000, becoming zero if your income is £125,140 or more.
Personal Savings Allowance (PSA)
It allows you to earn tax-free interest on your savings.
- Basic rate taxpayers can earn up to £1,000 in tax-free savings interest.
- The higher taxpayers can earn up to £500 in tax-free interest.
- Additional rate taxpayers do not receive a PSA.
Capital Gains Tax (CGT) Annual Exempt Amount
When you sell assets like shares or property, you may have to pay CGT on the profit. For the 2025/26 tax year, the tax-free allowance is £3,000 for individuals and £1500 for most trusts.
Pension Allowance
The standard annual allowance for pension contributions that receive tax relief is £60,000.
Trading And Property Allowances
Individuals can earn up to £1,000 of income from property and up to £1,000 from self-employment/trading income tax-free using these specific allowances.
How Much Dividend Tax Will I Pay?
You can calculate your dividend tax in the UK by:
- Adding all of your income to determine your highest marginal tax band.
- Apply your personal allowance (if available) and the dividend allowance first.
- Apply the relevant tax rate for dividends UK to any remaining dividend income that falls into your taxable income bands.
How Does the 2025/26 Dividend Allowance Compare to Previous And Upcoming Tax Years?
The annual tax-free dividend allowance has decreased substantially over recent years as part of government policy to bring more individuals into the tax system.
| Tax Year | Dividend Allowance |
| 2016/2017 | £5,000 (introduced April 2016) |
| 2018/2019 – 2022/2023 | £2,000 |
| 2023/2024 | £1,000 |
| 2024/2025 | £500 |
| 2025/2026 | £500 |
What Tools and Strategies Can Investors Use to Avoid the Tax Rate for Dividends in the UK?
Investors use different tools and strategies to manage their dividend tax liability. They are explained in detail below:
Individual Savings Accounts (ISAs)
It is the most common and effective tool. Any dividends or capital gains earned within a stocks and shares ISA are completely tax-free. The ISA allowance for the 2025/26 tax year is £20,000, which can be split across different types of ISAs.
Pensions (SIPPs)
Investments held within a pension scheme, such as a Self-Invested Personal Pension (SIPP), grow free from dividend and capital gains tax. Contributions also attract income tax relief, which can reduce your overall taxable income and potentially place you in a lower tax band. The annual pension allowance for most people is £60,000.
Spousal or Civil Partner Transfers
You can transfer dividend-paying assets to a spouse or civil partner who is a non-taxpayer or in a lower tax band. Transfers between spouses are exempt from Capital Gains Tax, enabling the couple to utilise both sets of personal and dividend allowances to reduce the household’s total tax bill.
Balancing Salary and Dividends (For Company Directors)
Company directors can optimise their remuneration strategy by taking a small salary (often aligned with the National Insurance threshold) and the remainder as dividends, to gain National Insurance credits without paying NI, and taking the rest as dividends.
Tax-Efficient Investment Schemes
include the Enterprise Investment Scheme, Seed Enterprise Investment Scheme, and Venture Capital Trusts, which offer substantial upfront income tax reliefs and possible Capital Gains Tax exemptions. However, these are higher-risk investments and may be more oriented to capital growth than providing regular dividends.
Timing of Dividends
If you expect a lower income in the next tax year, you can delay receipt of dividends to bring your dividend income within a lower tax bracket.
You must receive professional financial or tax advice to provide an overall plan tailored to your specific circumstances. In addition, online resources are available to give guidance on tax on dividends.
How to Report and Pay the Tax Rate for Dividends in the UK to HMRC?
The method to report your dividend income depends on the amount you receive. This also depends on whether you are already registered for Self Assessment.
If Your Total Dividend Income is up to £10,000
If your total dividend income exceeds the £500 dividend allowance but is £10,000 or less. This can be reported by:
- Asking HMRC to change your tax code so the tax is collected automatically through your wages or pension. You must inform HMRC by 5 October after the end of the tax year (e.g., by 5 October 2026 for the 2025/26 tax year).
- Contacting the HMRC helpline.
- Including it in your Self Assessment tax return, if you already fill one in.
If Your Total Dividend Income is Over £10,000
You must complete a Self Assessment tax return.
- If you don’t usually send a return, you need to register for Self Assessment online by 5 October following the end of the tax year in which you received the income.
- You will then need to fill in the relevant sections of your tax return, including details of the dividends you received, and pay any tax owed by the deadline.
Key Deadlines
- 5 October 2026: Deadline to register for Self Assessment for the 2025/26 tax year if you haven’t already.
- 31 January 2027: Deadline to file your online Self Assessment tax return and pay the tax you owe for the 2025/26 tax year.
Bottom Line
Understanding the tax rate for dividends UK for 2025/2026 doesn’t need to be complex. Once you understand the tax rate for dividends in the UK, then it becomes much easier to work out exactly what the tax rate for dividends means for you.
With the Dividend Allowance continuing to reduce and rates changing year over year, knowing what’s happening will allow you to plan wiser and avoid surprises. This will help you know whether dividends are still the most tax-efficient way to take income.
If you are unsure how the rules apply to your situation, it’s always worthwhile getting advice tailored to your own circumstances. Because a little bit of planning can save you far more in the long run.
Reach out to one of our professionals to get to know about a tax rate for dividends UK. Get in touch with us, and you will be provided instant professional help!
Disclaimer: This article intends to provide general information based on the tax rate for dividends UK.
