How dividend tax works

GOV.UK says you do not pay tax on any dividend income that falls within your personal allowance, and that you also get a dividend allowance of £500 each year, so you only pay tax on dividend income above it. GOV.UK says that to work out your tax band you add your total dividend income to your other income, so dividends are effectively counted after your salary, pension or rent, and one person can pay more than one dividend rate.

The dividend rates are UK-wide. Scottish taxpayers pay Scottish rates on earnings, pensions and property income, but the same dividend rates as everyone else.

Here is a simple case in England, using our own arithmetic. A director takes a salary of £12,570, which uses up the personal allowance, and £20,000 of dividends. All the dividends fall within the basic rate band, so:

• the first £500 is covered by the dividend allowance
• the remaining £19,500 is taxed at 10.75%
• dividend tax is £2,096.25

The picture changes if you have other income, if your total income goes above £100,000, where the personal allowance goes down by £1 for every £2 above that level, or if part of the dividends fall in the higher rate band. Our dividend tax calculator gives a quick estimate, and our guide to income tax rates and bands sets out the bands.

GOV.UK says you need to report dividends to HMRC if they are over both your unused personal allowance and the dividend allowance. If your dividends are within the dividend allowance for the year, you do not need to tell HMRC. Above that, how you report depends on the amount:

• up to £10,000: if you already send a self assessment return, report them on it; if not, let HMRC know after the end of the tax year and before 5 October, either by asking HMRC to update your tax code or by contacting the helpline
• over £10,000: you need to fill in a self assessment return, and if you do not usually send one you must tell HMRC by 5 October that you need to complete one

For the 2025/26 tax year, online returns and payment are due by 31 January 2027. If your bill is large enough you may also be asked for payments on account towards the next year.

If you own a company, the rules on the company's side matter as much as your own tax. GOV.UK says a company must not pay out more in dividends than its available profits from current and previous financial years, and dividends cannot be deducted when working out corporation tax. Each dividend should be declared at a directors' meeting, minuted and backed by a voucher. How much to take as dividends rather than salary is covered in paying yourself from a limited company, and our page on accountants for limited companies explains the help on offer.

The Budget on 28 October 2026 set out the same dividend rates and the same £500 allowance for 2027/28. That is announced, so check GOV.UK nearer the time. If your dividends come with other income that makes your return more complicated, we read every enquiry and, where we can, put you in touch with a local accountant; how it works explains what happens next.