If you own shares or run a limited company and pay yourself dividends, here's how they're taxed separately from other income.
The first £500 of dividend income each tax year is tax-free — this has been reduced sharply in recent years (it was £2,000 as recently as 2022/23).
| Your income tax band | Dividend Tax Rate |
|---|---|
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
Dividend income is treated as sitting "on top" of your other income for the purpose of determining which band it falls into — so it can push you into a higher band even if the dividends themselves aren't huge.
Many small business owners pay themselves a low salary (up to the NI threshold) plus dividends, since dividends aren't subject to National Insurance — a common and legal tax-efficient structure, though the shrinking dividend allowance has reduced its advantage over the years.
Calculate your exact dividend tax.
Use the Dividend Tax Calculator →Optimal salary/dividend splits depend on your full financial picture. Consult an accountant for company director tax planning.