How dividend tax is calculated
Dividend tax works differently to income tax in two important ways. First, dividends benefit from an annual allowance. The first £500 of dividend income each tax year is completely tax-free, regardless of how much you earn. Second, dividends are always taxed last, sitting on top of all your other income. This means your salary determines which tax bands are available for your dividends, not the other way around.
Stack your income in the right order
HMRC treats different income types in a specific order. Non-savings income (salary, self-employment, rental) uses up the personal allowance and lower rate bands first. Dividends are placed on top. This means if your salary already takes you into the higher rate band, all your dividends will be taxed at 35.75% or higher.
Apply the £500 dividend allowance
The first £500 of dividend income is tax-free. This allowance is used regardless of which band your dividends fall into; it applies before any rate is charged. The allowance was £2,000 in 2022/23, cut to £1,000 in 2023/24, and reduced again to £500 for 2024/25 onwards. It is separate from the personal allowance.
Apply the correct rate to remaining dividends
After the allowance, dividends are taxed at 10.75% if they fall within the basic rate band (up to £50,270 total income), 35.75% in the higher rate band (£50,271 to £125,140), and 39.35% in the additional rate band (above £125,140). A single dividend payment can span multiple bands.
Pay via self assessment
Dividend tax is not collected at source. You report it on your self assessment return and pay it by 31 January following the end of the tax year. If your dividend income is small (under £10,000 and you are not otherwise required to file), HMRC may collect the tax by adjusting your PAYE tax code instead.
| Dividend band | Income threshold | Rate |
|---|---|---|
| Dividend allowance | First £500 | 0% |
| Basic rate | Within basic rate band (up to £50,270 total) | 10.75% |
| Higher rate | £50,271 to £125,140 total | 35.75% |
| Additional rate | Over £125,140 total | 39.35% |
ISA dividends are completely tax-free: Dividends received from shares held within a Stocks and Shares ISA do not count towards your £500 allowance and are never taxable. If you are a regular dividend investor, holding shares inside an ISA is the most efficient structure.
What your results mean
The dividend tax figure shown is the amount you owe HMRC for 2026/27. This is reported on your self assessment return and paid by 31 January 2027. Unlike PAYE tax on salary, nothing is withheld at source when dividends are paid. The full gross amount lands in your account and you settle up with HMRC later.
If your only untaxed income is dividends under £10,000 and you do not otherwise need to file a return, HMRC can collect the tax by adjusting your PAYE tax code. This spreads the payment across the following tax year rather than requiring a lump sum. Contact HMRC or log into your Government Gateway account to arrange this.
If you are a company director taking a combination of salary and dividends, the Salary vs Dividends Calculator will help you find the most tax-efficient split, factoring in corporation tax and National Insurance as well as income tax.
Frequently asked questions
Yes. Dividends paid by your own limited company are taxed in exactly the same way as dividends from any other source. The company pays corporation tax on its profits first, and then the dividend is paid from post-tax profits. When you receive it, you pay dividend tax at the applicable rate above the £500 allowance. This is still usually more efficient than taking the same amount as salary, because the combined corporation tax and dividend tax rate is lower than income tax plus NI on salary at the same level.
The allowance was progressively cut as part of a broader government effort to reduce the tax advantages of incorporation and bring the tax treatment of dividend income closer to employment income. It started at £5,000 in 2016/17, was cut to £2,000 in 2018/19, dropped to £1,000 for 2023/24, and fell again to £500 from 2024/25. For investors with moderate shareholdings outside an ISA, this reduction has noticeably increased tax bills, making ISA and pension wrappers even more valuable.
Generally yes, the same UK dividend tax rules apply to foreign dividends received by UK residents. However, foreign companies often withhold tax at source before paying the dividend, and you may be able to claim relief for this withholding tax against your UK liability under a double tax treaty. The gross dividend (before overseas withholding) is what you report on your return, and any credit for foreign tax paid is applied separately. If you hold foreign shares in an ISA, the withholding tax position depends on the country, but there is no further UK tax.
No. Whether dividends are paid in cash or reinvested (for example through a Dividend Reinvestment Plan, or DRIP), they are still taxable in the year they are received. The reinvested amount is treated as income and then immediately treated as a new investment. The only way to avoid dividend tax entirely is to hold the shares inside a Stocks and Shares ISA or Self-Invested Personal Pension (SIPP), where dividends are received free of UK income tax.
Dividend income is reported in the Dividends section of your self assessment return (SA100). You enter the total gross dividend income received during the tax year from all sources: UK and overseas shares, investment trusts, and ETFs held outside an ISA. Your broker or share registrar will issue a tax certificate or consolidated tax voucher summarising your dividends for the year. For dividends from your own company, you should have issued dividend vouchers for each payment made.
Related calculators
Tax Toolkit UK provides free calculators for guidance purposes only. Results are estimates based on HMRC rates for the 2026/27 tax year. Individual circumstances vary. Always consult a qualified tax adviser before making financial decisions.