Reviewed by Connor Masters ATT, Senior Tax Specialist at RIFT Tax Refunds

Do you take dividends from your own company? Or maybe you earn them from shares? Either way, understanding dividend tax rates is key to knowing what you really take home. With the 2025/26 dividend allowance set at just £500, even modest payments can mean a tax bill. Knowing how the rates and thresholds work helps you stay organised, avoid surprises and keep more of your money where it belongs.

At RIFT, we make it simple. We’ll handle the numbers, deal with HMRC and make sure you’re never paying more tax than you should.

How dividend tax works in the UK

Dividend income is money you receive as a shareholder when a company shares out its profits. If you own shares, whether in your own limited company or as a personal investment, you might get dividend payments.

Unlike your salary or self-employment income, dividends are taxed separately and at different rates. They don’t come with National Insurance deductions, and the tax you pay depends on your overall income level.

Everyone gets a personal allowance. Up to £12,570 of total income can be earned tax-free in 2025/26. After that, your dividend income is taxed according to your income band, but only once you’ve also used up your £500 dividend allowance.

Dividend tax rates for 2025/26

For the 2025/26 tax year, dividend income above your allowances is taxed at special rates depending on your income band. These rates are lower than standard income tax rates, making dividends a tax-efficient way to earn. But only up to a point.

You won’t pay any tax on the first £500 of dividend income thanks to the dividend allowance. After that, you’ll only start paying tax once your personal allowance has also been used up by your total income. The dividend tax rates for 2025/26 are:

  • Basic rate (total income up to £50,270): 8.75%
  • Higher rate (income between £50,271–£125,140): 33.75%
  • Additional rate (income over £125,140): 39.35%

These thresholds are based on your total income, not just your dividends. So if your salary or other income pushes you into a higher band, your dividends will be taxed at that higher rate too.

What is the dividend allowance?

The dividend allowance is the amount of dividend income you can receive tax-free each year. In 2024, the allowance was reduced to £500, down from £1,000 in the previous tax year. It remains at £500 this tax year.

That means the first £500 of dividend income you receive won’t be taxed, no matter what income band you’re in. But after your personal allowance is used up, anything above that will be taxed at the dividend rates for your income level.

This cut to the allowance means more people will now owe tax on their dividends, even if they only receive modest payments. If you rely on dividends as part of your income, it’s more important than ever to plan ahead and get the right support.

How to calculate and pay dividend tax

Working out how much dividend tax you need to pay is all about knowing your numbers. This is our simple step-by-step guide:

  1. Add up all your dividend income for the tax year.
  2. Take off your £500 dividend allowance.
  3. Apply your personal allowance if you haven’t already used it against other income.
  4. Use the correct dividend tax rate based on your total income.

You’ll only pay dividend tax on the portion of income that’s above both your allowances. Your income band determines which rate applies and if your dividends push you into a higher band, that part will be taxed at the higher rate.

How to pay

If your dividend income is under £10,000, you can:

  • Ask HMRC to adjust your tax code so it’s collected via PAYE
  • Include it in a Self Assessment tax return if you prefer

If your dividend income is over £10,000, you must file a Self Assessment return.

If that sounds like a hassle, don’t worry. We’ll handle the whole process for you, making sure everything’s accurate, on time and stress-free.

When do I need to do a Self Assessment?

You’ll need to file a Self Assessment tax return if your dividend income is over £10,000 in a single tax year. This applies even if you don’t usually send a return. Missing the deadline can land you with tax return penalties from HMRC.

Even if your dividend income is under £10,000, you might still need to report it. For example, if you’re:

  • Already completing a tax return for other reasons
  • A company director or high earner
  • Asked to by HMRC

In those cases, dividend income must be included in your Self Assessment, even if it’s below the £500 allowance.

Getting it wrong or missing the deadline can lead to fines, interest and stress. We can take that off your plate, making sure you file correctly and on time. Especially if you’re dealing with multiple income streams or complex tax rules.

How we can help

Dividend tax might not be straightforward but with us on your side, it doesn’t have to be stressful.

We’ve helped thousands of people stay on the right side of HMRC, from limited company directors and contractors to high earners juggling multiple income streams. If you’re unsure what you need to report, or how to do it, we’ve got your back. Our experts will:

  • Calculate what you owe with complete accuracy
  • Apply all your allowances and avoid costly mistakes
  • File your Self Assessment on time and stress-free

Whether you’re new to dividends or just want peace of mind, we’ll take care of the paperwork so you can get on with everything else.

Stay on top of dividend tax without the stress

With the dividend allowance shrinking and more people falling into the tax net, it’s never been more important to understand your responsibilities. But that doesn’t mean you have to go it alone.

We make tax feel manageable and we know all the ins and outs to get it right the first time.

Let RIFT take the stress out of dividend tax. Get in touch to speak to our team today and we’ll sort the paperwork for you.

UK dividend tax rate FAQs

What happens if I don’t pay tax on dividends?

If you owe tax on dividend income and don’t report it, HMRC can charge interest and penalties. You could face fines or even an investigation. It’s always safer to declare your earnings, even if you think the tax owed is small.

Do I need to pay tax on dividends in an ISA?

Dividend income earned inside a Stocks and Shares ISA is completely tax-free. It doesn’t count toward your £500 dividend allowance or your total taxable income, so you don’t need to include it in a Self Assessment return.

Are dividends taxed differently if I’m self-employed?

Dividends are taxed separately from self-employment income. Self-employed earnings are subject to income tax and National Insurance, while dividends follow their own tax bands and rates and don’t incur NI contributions.

Can I reduce my dividend tax bill?

You can’t claim expenses against dividend income, but smart planning helps. Using your ISA allowance, spreading dividends across tax years or adjusting your salary-dividend balance if you’re a company director can reduce what you owe.

What if my dividend income is my only income?

If your total income including dividends is under the personal allowance (£12,570) plus the £500 dividend allowance, you won’t pay tax. But you might still need to tell HMRC, especially if your income approaches those limits.

Do foreign dividends count toward the UK dividend allowance?

Foreign dividends are included in your UK dividend allowance. You might also need to pay UK tax on them, even if they were taxed abroad. It’s best to check the double taxation rules and include them in your Self Assessment.

How do I report dividend income to HMRC?

If your dividend income is over £500 or you’re required to file a Self Assessment for any reason, you must report it on your return. Smaller amounts might be handled via PAYE but always keep records and check your tax code.

Can I carry forward unused dividend allowance?

The dividend allowance resets each tax year and can’t be carried over. If you don’t use it, you lose it. That’s why it’s useful to plan your income around the tax year end if you have flexibility.