Dividend Tax Calculator (2025/26)
How it works
Dividends are taxed differently from salary: no NI, lower rates, and a £500 allowance on top of your normal personal allowance. Dividends are stacked on top of your other income, so they get taxed at the rate that corresponds to where they sit in your overall income.
Worked example
Director takes £12,570 salary + £40,000 dividends.
- Salary uses all of personal allowance → no Income Tax on salary
- £500 dividend allowance → tax-free
- £37,200 taxed at 8.75% basic rate = £3,255
- £2,300 taxed at 33.75% higher rate = £776
- Total dividend tax: £4,031
Who should use this
- •Limited company directors taking dividends
- •Investors with shares outside ISAs
- •Anyone paid in part with dividends (e.g. equity)
- •Spouses receiving distributed shares
Common mistakes
- ×Assuming dividends are tax-free below £2,000 (the allowance dropped to £500 in 2024/25)
- ×Forgetting dividends count toward the £100k allowance taper
- ×Not telling HMRC if you receive over £10,000 in dividends
- ×Confusing the dividend allowance with the personal savings allowance
Frequently asked questions
What is the dividend allowance for 2025/26?▾
£500 — down from £1,000 in 2023/24 and £2,000 before that.
Do dividends pay National Insurance?▾
No. That's a key reason directors take part of their pay as dividends rather than salary.
How are ISA dividends taxed?▾
They aren't — dividends inside a Stocks & Shares ISA are completely tax-free and don't need declaring.
When do I declare dividends?▾
Always on a Self Assessment return if dividends exceed £10,000, or if HMRC asks. Below that, ask HMRC to adjust your tax code.
What's the optimal director salary?▾
Often £12,570 (full personal allowance, qualifies for State Pension via NI credits if over the LEL) plus dividends — but it depends on circumstances.
Are foreign dividends taxed the same?▾
Generally yes for UK residents, but you may also pay foreign withholding tax. Double Tax Treaties usually let you reclaim some.