- Dividend tax rates for 2025/26 are 8.75% (basic), 33.75% (higher) and 39.35% (additional).
- The first £500 of dividends is tax-free (the dividend allowance).
- Dividends sit on top of your other income, so your salary decides which band they fall into.
- Dividends do not attract National Insurance, which is what makes them efficient for company directors.
- Corporation tax is paid on company profit before any dividend is declared.
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The dividend rates
For 2025/26, once you have used the £500 dividend allowance, dividends are taxed at:
- 8.75% within the basic rate band (income up to £50,270)
- 33.75% within the higher rate band (£50,271 to £125,140)
- 39.35% within the additional rate band (above £125,140)
These are lower than the equivalent income tax rates, and dividends carry no National Insurance, which is why a salary-plus-dividends mix is usually more efficient for a director than salary alone.
Why your salary affects the dividend rate
Dividends are treated as the top slice of your income. So if your salary already uses up the basic rate band, your dividends start being taxed at the higher 33.75% rate straight away. If your salary is low (say the £12,570 personal allowance), more of your dividends fall in the 8.75% band before tipping into 33.75%.
That stacking is why the calculator asks for both numbers, and why the optimal salary and dividend split is a real planning question, covered in our salary vs dividends guide.
The £500 dividend allowance
Every individual gets a £500 dividend allowance, taxed at 0%. It has shrunk steadily, from £2,000 a few years ago to £500 now, so it shelters far less than it used to. Note it does not reduce your income for band purposes: the allowance is a 0% rate within whichever band the dividends fall, not a deduction.
If your spouse is also a shareholder, they have their own £500 allowance and their own bands, which is why genuine spousal shareholdings can spread dividend income tax-efficiently.