Dividend Tax Calculator 2025/26

How dividend tax works in 2025/26

Dividends are payments made to shareholders from a company's post-tax profits. As a limited company director you can pay yourself a combination of salary and dividends, which is often more tax efficient than salary alone.

Dividend allowance 2025/26

Every individual has a £500 dividend allowance — dividends up to this amount are tax free regardless of which tax band you are in. Note that this allowance was reduced from £1,000 to £500 in April 2024.

Dividend tax rates 2025/26

• Basic rate — 8.75%: Dividends that fall within the basic rate band (up to £50,270 total income).
• Higher rate — 33.75%: Dividends that fall within the higher rate band (£50,270 to £125,140 total income).
• Additional rate — 39.35%: Dividends above £125,140 total income.

How dividends interact with your salary

Your salary and dividends are added together to determine which tax band your dividends fall into. This is why most limited company directors pay themselves a salary of £12,570 (the personal allowance) and take the rest as dividends — the salary uses up the personal allowance and the dividends are taxed at the lower dividend rates rather than income tax rates.

Dividends and Self Assessment

If you receive dividends above £500 in a tax year you must report them on a Self Assessment tax return. The tax is due by 31 January following the end of the tax year.

The optimal salary/dividend split

For most limited company directors the most tax-efficient approach is:

• Pay yourself a salary of £12,570 per year (or £1,048 per month) — this uses your personal allowance and is deductible against corporation tax
• Take remaining profits as dividends after paying corporation tax

Use our Sole Trader vs Ltd Company Calculator to compare your overall tax position under both structures.

When not to take dividends

You cannot take dividends if your company does not have sufficient distributable profits. Taking dividends when there are no profits is an illegal dividend and can have serious legal and tax consequences.