A guide to UK dividend tax rates and thresholds

Quick answer:

You may need to pay tax on dividends if your dividend income is above your available Personal Allowance and the annual dividend allowance.  For the current tax year: The dividend allowance is £500 Dividends inside a Stocks and Shares ISA are tax-free Dividend income above the allowance is taxed according to your Income Tax band You may need to report dividend income to HMRC if it exceeds your available allowances

RIFT Roundup:

• Dividend income is money paid to shareholders from company profits.
• The dividend allowance is £500.
• Dividends inside ISAs are tax-free.
• Dividend tax rates depend on your Income Tax band.
• Your total income matters, not just your dividend income.
• Limited company directors often need to plan salary and dividends carefully.
• If your dividend income is high enough, you may need to file Self Assessment. 

How dividend tax works in the UK

How does dividend tax work in the UK? 

Dividend income is money you receive as a shareholder when a company distributes profit. 

You might receive dividends if:

• you own shares in a company
• you run your own limited company and pay yourself dividends
• you hold investments outside an ISA or pension
• you receive dividends from overseas shares 

Dividends are taxed differently from wages or self-employed income. They do not usually have National Insurance deducted, and they have their own tax rates. 

However, dividends are still part of your wider income picture. HMRC looks at your total income when working out which dividend tax rate applies. 

That means your salary, pension income, rental income, savings interest and dividends can all interact. 

For a broader view of how UK tax works, see our UK Tax Guide

What is the dividend allowance? 

The dividend allowance is the amount of dividend income you can receive each tax year before dividend tax applies. 

The current dividend allowance is £500. 

This means the first £500 of dividend income is taxed at 0%. 

It is important to understand that the dividend allowance is not the same as the Personal Allowance. 

Most people also have a Personal Allowance, which is the amount of income they can usually receive before paying Income Tax. Once your Personal Allowance has been used by salary, pension income or other taxable income, the dividend allowance then applies to dividend income. 

If your dividends fall within an ISA, they do not use the dividend allowance at all because ISA dividends are tax-free. 

Dividend tax rates 

Dividend tax rates depend on your Income Tax band. 

The current dividend tax rates are: 

Tax band	Dividend tax rate
Basic rate	10.75%
Higher rate	35.75%
Additional rate	39.35%

You only pay these rates on dividend income above your available allowances. 

You may also pay tax at more than one dividend rate if your dividend income pushes you into a higher band. 

How your tax band affects dividends 

Your dividend tax rate is based on your total taxable income. 

That includes dividend income and other income such as:

• salary
• self-employed profit
• pension income
• rental income
• savings interest
• taxable benefits 

This matters because your dividend income can push part of your total income into a higher tax band. 

Example: basic-rate taxpayer with dividends 

Let’s say you earn £30,000 from employment and receive £3,000 in dividends. 

Your salary uses your Personal Allowance and part of your basic-rate band. 

Your first £500 of dividends is covered by the dividend allowance. 

The remaining £2,500 of dividends is taxed at the basic dividend rate. 

Example: dividends pushing you into a higher band 

Now let’s say your salary already takes you close to the higher-rate threshold. 

If you receive dividends on top, part of those dividends may be taxed at the basic dividend rate and part may be taxed at the higher dividend rate. 

This is why dividend tax is not always as simple as looking at your dividend payment alone. The rest of your income matters. 

Do you pay tax on dividends in an ISA? 

No. Dividends received from shares held inside a Stocks and Shares ISA are tax-free. 

They do not count towards your £500 dividend allowance and do not need to be reported as taxable dividend income. 

This is one reason ISAs are often used as part of tax-efficient saving and investing. 

This is general information only, not investment advice. If you’re making investment decisions, it’s worth taking regulated financial advice where needed. 

Do limited company directors pay dividend tax? 

Yes, if they receive dividends above their available allowances. 

Many limited company directors pay themselves using a mixture of salary and dividends. This can be tax-efficient, but it needs to be handled carefully. 

Company directors need to think about:

• salary
• dividends
• Corporation Tax
• Personal Allowance
• dividend allowance
• Self Assessment
• pension contributions
• company records 

If you take dividends from your own limited company, it’s important to keep proper records of dividend payments and board minutes where required. 

Dividend tax is your personal tax liability, not the company’s. 

How do you calculate dividend tax? 

A simple way to approach dividend tax is: 

1. Add up your total income for the tax year 
2. Work out how much of your Personal Allowance is available 
3. Add your dividend income on top of your other income 
4. Take off the £500 dividend allowance 
5. Apply the correct dividend tax rate or rates 

The rate you pay depends on which tax band your dividends fall into. 

Example 

Let’s say your total employment income is £40,000 and you receive £5,000 in dividends. 

Your Personal Allowance is used against your employment income. 

Your first £500 of dividends is covered by the dividend allowance. 

That leaves £4,500 of taxable dividend income. 

Because your total income remains within the basic-rate band, that £4,500 is taxed at the basic dividend rate. 

If your income was higher, some or all of those dividends could be taxed at the higher dividend rate. 

How do you pay dividend tax? 

How you pay dividend tax depends on how much dividend income you receive and whether you already complete a Self Assessment tax return. 

You may be able to pay through an adjustment to your tax code if the amount is relatively small and HMRC can collect it through PAYE. 

You may need to report dividends through Self Assessment if: 

• your dividend income is high
• you already complete a tax return
• you are a company director
• you have multiple income sources
• HMRC asks you to file 

Do you need to report dividends under £500? 

If your total dividends are within the £500 dividend allowance and you do not otherwise need to file a Self Assessment return, you may not need to report them. 

However, you should still keep records. 

If you already complete Self Assessment, you should include dividend income in your return where required, even if no tax is ultimately due. 

It’s always better to keep the paperwork tidy than try to reconstruct it later. 

What happens if you do not pay tax on dividends? 

If you owe tax on dividends and do not report it, HMRC can charge interest and penalties. 

In some cases, it may simply be corrected through your tax code or Self Assessment. In others, HMRC may investigate further. 

This is especially important if you receive regular dividends from a limited company or investments outside an ISA. 

The tax due may be small, but reporting it correctly still matters. 

Can you reduce dividend tax legally? 

There are some legitimate ways to manage dividend tax, but this is an area where you need to be careful and avoid anything that sounds too clever. 

Common planning points include:

• using your ISA allowance where suitable
• keeping accurate records
• planning dividend timing where you have control over payments
• understanding your full income position before taking dividends
• reviewing salary and dividend balance if you are a company director
• making use of pension planning where appropriate
• transferring assets between spouses or civil partners where suitable 

These are not quick fixes and they may not be right for everyone. Tax planning should be legal, documented and based on your wider circumstances. 

For higher-income planning context, see our guide Understanding tax for high earners.

Dividends and adjusted net income 

Dividend income can affect your adjusted net income. 

That matters because adjusted net income can affect:

• the High Income Child Benefit Charge
• the Personal Allowance taper over £100,000
• certain tax calculations and reliefs 

If dividends push your adjusted net income above a threshold, the impact may be bigger than the dividend tax alone. 

Learn more here: What Is Adjusted Net Income?

Dividends and Capital Gains Tax 

Dividend tax and Capital Gains Tax are different. 

Dividend tax applies to income you receive from shares. 

Capital Gains Tax may apply when you sell shares or other assets for a profit. 

It is possible to have both types of tax to think about if you receive dividends and later sell the shares. 

RIFT Recommends 

If you receive dividends, do not look at them in isolation. 

Check:

• your salary
• any pension income
• rental income
• savings interest
• dividend payments
• ISA holdings
• Self Assessment status
• Child Benefit position
• Personal Allowance position 

That gives you a much clearer view of whether tax is due and whether your records are complete. 

When to get help with dividend tax 

Dividend tax may be straightforward if you receive a small amount from listed shares. 

It becomes more complicated if you:

• are a limited company director
• receive large or regular dividends
• have multiple income sources
• are close to a tax threshold
• complete Self Assessment
• receive foreign dividends
• are unsure whether HMRC has the right information 

If you are unsure, getting clarity early is much easier than fixing a problem later. 

Stay on top of dividend tax without the stress 

Dividend tax is manageable once you understand the basics. 

The important things are knowing your allowance, understanding which rate applies, keeping good records and reporting dividend income where needed. 

If you’re not sure whether your wider tax position is correct, it’s worth checking. Dividends are only one part of the picture, and other issues such as tax codes, allowances or unclaimed reliefs can also affect what you owe. 

UK dividend tax rate FAQs