How dividend tax works
The first £500 of dividends each year is tax-free under the dividend allowance. Above that, dividends are taxed at their own rates: 10.75% in the basic-rate band, 35.75%in the higher-rate band and 39.35% in the additional-rate band for 2026-27. Dividends sit on top of your other income, so your salary and other earnings fill the bands first and the dividends are taxed on whatever band they land in. Dividends held inside an ISA are free of dividend tax entirely.
Salary vs dividends for directors
Company directors often take a small salary plus dividends, because dividends carry no National Insurance. The trade-off is that dividends are paid from company profit after corporation tax, so the saving is smaller than the headline rates suggest. The right split depends on your circumstances, so treat this as a way to see the numbers, not as tax advice.
Frequently asked questions
How much tax do I pay on dividends?
For 2026-27 you pay 10.75% on dividends in the basic-rate band, 35.75% in the higher-rate band and 39.35% above that, on everything over the £500 dividend allowance. Which rate applies depends on where the dividends sit once stacked on top of your other income.
What are the dividend tax rates for 2025-26?
For the 2025-26 tax year the dividend tax rates are 8.75% at the basic rate, 33.75% at the higher rate and 39.35% at the additional rate, with the first £500 of dividends tax-free under the dividend allowance. From 6 April 2026 the basic and higher rates rise by 2 points to 10.75% and 35.75%, announced at Budget 2025, while the additional rate stays at 39.35% and the allowance stays at £500.
What is the dividend allowance for 2026-27?
£500 of dividends are tax-free each year, on top of your personal allowance. It fell from £1,000 in 2023-24 and £500 in 2024-25, and stays at £500 for 2026-27.
How much can I earn in dividends tax-free?
The £500 dividend allowance, plus any of your £12,570 personal allowance not used up by other income. So if you have no other income, a large slice of dividends can fall within the personal allowance before the £500 even applies.
Are dividends taxed before or after salary?
After. Dividends are treated as the top slice of your income, so your salary and other income fill the tax bands first, then dividends stack on top and are taxed at the dividend rates.
Is it better to take salary or dividends as a director?
Many company directors take a small salary plus dividends, because dividends carry no National Insurance and are taxed at lower headline rates than salary: 10.75% at the basic rate, 35.75% at the higher rate and 39.35% above, for 2026-27, after the £500 dividend allowance. The catch is that dividends come from company profit after corporation tax, so the real saving is smaller than those rates suggest once the company tax is counted. This calculator shows the personal tax on your dividends; the right salary-versus-dividend split depends on your own circumstances, so treat it as a way to see the numbers, not as advice.
Do I pay National Insurance on dividends?
No. Dividends carry no National Insurance, unlike salary. That's a large part of why company directors often take a small salary plus dividends, though dividends come from profit after corporation tax.
This tool is a guide, not tax advice.
