Dividend Income & Tax

What Are Dividends?

Dividends are payments a company makes to its shareholders from its profits. You might receive dividends from:^[1]

Shares in listed companies (e.g. through an investment portfolio)
Your own limited company (a common way to extract profits)
Investment funds and unit trusts

The Dividend Allowance

The first £500 of dividend income each year is tax-free (from 2024/25 onwards). This is your dividend allowance.^[1]

The allowance has been reduced significantly in recent years — it was £2,000 in 2022/23 and £1,000 in 2023/24.

Dividend Tax Rates

Dividends above the allowance are taxed at special rates, which are lower than rates on other income:^[1]

Tax Band	Dividend Tax Rate	Rate on Other Income
Basic rate (£12,571–£50,270)	8.75%	20%
Higher rate (£50,271–£125,140)	33.75%	40%
Additional rate (over £125,140)	39.35%	45%

How Dividend Tax Is Calculated

Dividends sit on top of your other income for tax purposes. HMRC applies your Personal Allowance and other income first, then taxes dividends:^[2]

Your Personal Allowance (£12,570) covers non-dividend income first
Employment, self-employment, pension, and savings income fills up the basic rate band
Dividends are then taxed at the relevant dividend rate depending on which band they fall into

Example: If you earn £40,000 salary and £5,000 in dividends, the salary uses up £40,000 of your basic rate band. The first £500 of dividends is tax-free (allowance), and the remaining £4,500 is taxed at 8.75% (£393.75).

Dividends from Your Own Company

If you’re a company director-shareholder, dividends are typically more tax-efficient than salary above certain levels because:^[1]

No National Insurance on dividends (unlike salary)
Lower tax rates than Income Tax on other income

However, dividends can only be paid from company profits after Corporation Tax, so the overall tax picture is more nuanced than just comparing rates.

When You Need Self Assessment

You need to file a Self Assessment return for dividends if:^[5]

Your dividend income exceeds £10,000
Your dividends push you into the higher rate tax band
You need to report dividends from a foreign company

If your dividends are under £10,000 and within the basic rate band, HMRC may collect any tax owed by adjusting your PAYE tax code.

Dividends and MTD

Dividend income does not count as qualifying income for MTD. It doesn’t count towards the £50,000 threshold, and you don’t report it in quarterly updates. However, you will need to declare dividends in your Final Declaration at year-end, which you can submit through MTD Income Tax software such as GoFile.^[1]

Frequently Asked Questions

How much dividend income is tax-free in 2025/26?

The dividend allowance for 2025/26 is £500. The first £500 of dividend income you receive is tax-free, regardless of your other income. This has been reduced from £1,000 in 2023/24 and £2,000 in 2022/23.

What is the tax rate on dividends in the UK?

Above the £500 allowance, dividends are taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers, and 39.35% for additional-rate taxpayers. These are lower than the rates on other income.

Do I pay National Insurance on dividend income?

No. Unlike salary, there is no National Insurance payable on dividends. This is one reason why company director-shareholders often take a combination of salary and dividends.

Do I need to file a Self Assessment return for dividends?

You need to file if your dividend income exceeds £10,000 or pushes you into the higher rate band. If dividends are under £10,000 and within the basic rate band, HMRC may collect tax by adjusting your PAYE tax code instead.

Sources

Tax on dividends — GOV.UK
Income Tax rates and Personal Allowances — GOV.UK
Self Assessment tax returns — GOV.UK
Tax on savings interest — GOV.UK
Check if you need to send a Self Assessment tax return — GOV.UK

Dividend Income & the Dividend Allowance