Dividend Tax Rates 2025/26: Rates, Bands and the £500 Allowance

This guide owns the rates question: what the dividend tax rates, bands and allowance are for 2025/26, and how they rise in 2026/27. If your question is how dividends interact with savings interest, the Personal Savings Allowance or the starting rate for savings, see our companion guide on dividends and the Personal Savings Allowance.

What Are the Dividend Tax Rates for 2025/26?

The dividend tax rates for 2025/26 are unchanged from 2024/25. You pay tax on dividends above the £500 allowance at the rate matching the income tax band your total income falls into:

• Basic rate (8.75%), where total taxable income is between £12,571 and £50,270.
• Higher rate (33.75%), where total taxable income is between £50,271 and £125,140.
• Additional rate (39.35%), where total taxable income exceeds £125,140.

These rates apply to dividends from UK companies, including your own limited company. They are lower than the equivalent income tax rates on salary (20%, 40%, 45%) because dividends are paid from profits that have already borne corporation tax.

Dividend Tax Rates 2025/26 vs 2026/27: Comparison Table

Finance Act 2026 (Royal Assent 18 March 2026, section 4) raises the ordinary and upper dividend rates from 6 April 2026. The additional rate and the £500 allowance are unchanged. Every figure below is labelled with its tax year:

Band	Total income	2025/26 rate	2026/27 rate (from 6 Apr 2026)
Dividend allowance	First £500 of dividends	0%	0%
Basic (ordinary) rate	£12,571 to £50,270	8.75%	10.75%
Higher (upper) rate	£50,271 to £125,140	33.75%	35.75%
Additional rate	Above £125,140	39.35%	39.35%

The timing point matters. Dividends are taxed in the year you become entitled to them, so a final dividend declared and paid by 5 April 2026 is taxed at 8.75% or 33.75%, while the same dividend paid on 6 April 2026 or later is taxed at 10.75% or 35.75%. On £40,000 of basic rate dividends, that timing difference is £790 (£39,500 at 2% extra).

The £500 Dividend Allowance

The dividend allowance is £500 for 2025/26 and stays at £500 for 2026/27. It is a zero-rate band, not a deduction: the first £500 of dividends is taxed at 0% but still occupies part of whichever band it falls into. Any dividends above £500 are taxed at the rates above.

The allowance has dropped sharply: £5,000 in 2016/17, £2,000 from 2018/19, £1,000 in 2023/24, and £500 from 2024/25. A director taking modest dividends now pays tax on almost all of them: 8.75p per pound above £500 at basic rate in 2025/26 (10.75p from 6 April 2026).

How Dividend Tax Works: Worked Examples for Both Years

Dividends are treated as the top slice of your income. Add your dividends to your other income (salary, rental income and so on), then work out which band the dividends land in.

Example 1: £12,570 salary plus £40,000 dividends, 2025/26

Say you are a director of a Manchester consultancy. Salary £12,570 uses your personal allowance. Dividends £40,000. Total income £52,570. The first £500 of dividends is covered by the allowance. That leaves £39,500 to tax. The basic rate band above the salary runs from £12,571 to £50,270, which is £37,700 of headroom, but £500 of it is used by the allowance, leaving £37,200 of dividends taxed at 8.75% (£3,255.00). The remaining £2,300 falls into the higher rate band at 33.75% (£776.25). Total dividend tax for 2025/26: £4,031.25.

Example 2: the same figures in 2026/27

Identical income, one year later. The bands and the £500 allowance are the same, but the rates have risen. £37,200 at 10.75% is £3,999.00, and £2,300 at 35.75% is £822.25. Total dividend tax for 2026/27: £4,821.25. The rate rise alone costs this director £790 a year on unchanged income.

Example 3: dividends only, no salary, 2025/26

Take £40,000 of dividends with no salary. The personal allowance of £12,570 covers the first slice of the dividends, and the £500 dividend allowance covers the next. That leaves £26,930 taxed at 8.75%, a bill of £2,356.38. The trade-off: with no salary you build no qualifying years for the state pension and the company gets no deductible salary cost. Our guide to National Insurance for directors covers why most directors keep at least a small salary.

Salary vs Dividends in 2025/26

For most limited company directors a small salary plus dividends remains the most tax-efficient structure. The common pattern is a salary at the personal allowance (£12,570) with dividends up to the top of the basic rate band.

The employer NIC position changed from 6 April 2025: the secondary threshold fell to £5,000 and the employer rate rose to 15%. A single-director company cannot claim the Employment Allowance (£10,500 where eligible), so employer NIC on a £12,570 salary is £7,570 x 15% = £1,135.50 with no offset. Some single-director companies therefore set salary at £5,000 instead. The full mechanics, including the Employment Allowance test, are in our National Insurance for directors guide.

Extracting profit as dividends still usually beats a bonus or extra salary, because dividends carry no NIC. But the 2026/27 rate rise narrows the gap by 2 percentage points at basic and higher rate, so re-run the comparison for any decision straddling 6 April 2026.

Dividend Tax for Contractors Working Through a Ltd Company

Contractors outside IR35 face the same rates as any other director, but higher margins push them into the higher band faster. Take a contractor whose company can distribute £60,000 after corporation tax, on top of a £12,570 salary, in 2025/26. Total income £72,570. The allowance covers £500. Basic rate headroom above the salary is £37,700, of which £500 is used by the allowance, so £37,200 is taxed at 8.75% (£3,255.00) and the remaining £22,300 at 33.75% (£7,526.25). Total dividend tax: £10,781.25. In 2026/27 the same figures produce £3,999.00 plus £7,972.25, a total of £11,971.25.

One caution at higher incomes: once total income passes £100,000 the personal allowance tapers away at £1 for every £2 over, which raises the effective marginal rate on dividends in the £100,000 to £125,140 band well above the headline 33.75% (35.75% from 6 April 2026). Model it before declaring a large dividend.

For contractors inside IR35 the client deducts tax and NIC at source, so dividends from the deemed payment are far less relevant.

Dividend Tax for Spouse Shareholdings

Many husband-and-wife companies use alphabet shares to split dividends and keep both spouses in the basic rate band. A couple with £80,000 of distributable profit in 2025/26 who take £40,000 each alongside £12,570 salaries pay basic and a little higher rate tax each (Example 1 above, twice: £8,062.50 in total). If one spouse took the whole £80,000, most of it would sit in the higher rate band at 33.75%.

The caveat is the settlements legislation: HMRC can reattribute dividends where shares are given to a spouse purely to divert income and the spouse has no real stake. Shares must carry full rights and the arrangement must be genuine. Our director pay and dividends guidance covers the detail.

Dividend Tax and Corporation Tax: the Combined Rate

Dividends are paid from post-tax profit, so the true cost of extraction is the two layers combined. Corporation tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between (an effective 26.5% on the slice in the band; see our marginal relief guide). The combined effective rates on a pound of company profit extracted as dividend:

Corporation tax rate	Dividend rate	Combined 2025/26	Combined 2026/27
19% (small profits)	Basic	26.1%	27.7%
19% (small profits)	Higher	46.3%	48.0%
25% (main rate)	Higher	50.3%	51.8%

The arithmetic behind the first row: £100 of profit bears £19 corporation tax, leaving £81; £81 at 8.75% is £7.09; £19 plus £7.09 is £26.09, so 26.1%. At 10.75% the dividend layer is £8.71, giving £27.71, so 27.7%. Higher combined rates strengthen the case for retaining profit, reinvesting, or extracting via employer pension contributions instead. For companies claiming R&D tax credits, the credit reduces the corporation tax layer but the dividend layer is unchanged.

How to Report Dividends on Your Tax Return

Dividends go on the dividend pages of your self assessment return (SA100). Nothing is sent to HMRC when the dividend is declared; you report it annually. For 2025/26 the online filing and payment deadline is 31 January 2027. If your liability is large enough you may owe payments on account on 31 January and 31 July.

If you are weighing up incorporation, the dividend rates for both years feed directly into the sole-trader-versus-company comparison; our incorporation page walks through it.

Dividend Tax Planning for 2025/26 and the 2026/27 Rise

• Use the £500 allowance every year. It costs nothing at any rate band.
• Keep total income within the basic rate band where you can. Above £50,270 each extra pound of dividend jumps from 8.75% to 33.75% in 2025/26 (10.75% to 35.75% in 2026/27). Spreading retained profit over several years keeps more of it at the lower rate.
• Mind the 6 April 2026 boundary. Where a dividend was genuinely available to declare in 2025/26, paying it before 6 April 2026 locks in the lower rates; the saving is 2% of everything above the allowance at basic and higher rate.
• Consider company pension contributions. They reduce corporation tax, carry no NIC, and are not income for you personally, keeping your total income below band thresholds.
• Review spouse shareholdings. Genuine alphabet-share structures let a couple use two allowances and two basic rate bands.

Dividend Tax for Sole Traders and Non-UK Residents

Sole traders and partnerships do not pay dividend tax on their own trading profits; those are taxed as income through self assessment. Dividends they receive from shares in other companies are taxed at the dividend rates above, as the top slice of income.

A UK resident pays UK dividend tax on worldwide dividends. A non-UK resident pays UK dividend tax only on UK-company dividends, subject to any double taxation agreement, and residency is decided by the statutory residence test. A director who has genuinely become non-resident is typically taxed in their country of residence instead.