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Dividend tax allowance for 2025/26 explained

Here's everything you need to know about this year's dividend tax allowance
A photograph looking into a jar with a pile of coins at the bottom
Reading time: 7 mins

Getting a payout from the companies you’ve invested in is a satisfying feeling. As you’ve supported their business growth, they return to you with kindness (and by kindness, we mean money).

But what happens when these dividend payouts start to build?

How do they affect your annual taxes?

And how do you declare them?

Read on to find the answers to your questions, or jump straight to them here:

What is dividend tax?

If you invest in a company as a shareholder and the business performs well, they may pay you back a share of the profits. These payments are called dividends.

And dividend tax is the tax due when those dividend payments build up to a certain amount of money.

Thankfully, you do get an annual allowance to initially cover your dividends payments before you need to start paying this tax, but how much you’ll pay in tax depends on your income tax band.

Income tax bands

If you’re a UK tax resident living in England, Wales, or Northern Ireland, and earning the minimum amount needed to pay income tax you’ll fall into one of the three tax bands.

This table shows how much you’d pay in dividends tax:

Income tax band 2025/26 Your annual income Dividend tax to pay
Personal Allowance (under minimum income tax band threshold) Up to £12,570 0%
Basic rate £12,571 to £50,270 8.75%
Higher rate £50,271 to £125,140 33.75%
Additional rate Over £125,140 39.35%

Note: if you live in Scotland, the income tax bands are slightly different. You can view the Scottish tax bands for 2025/26 here. However, the amount of tax paid on dividends is treated the same as the rest of the UK.

What’s the 2025/26 dividend allowance?

Each tax year, you have a dividend allowance you’re entitled to use. Between 6th April 2025- 5th April 2026 the current allowance is £500. Meaning you don’t need to pay tax on the first £500 you earn in dividends this year.

But that hasn’t always been the case. In previous tax years, we’ve seen the allowance drop: 

Tax year dates Dividend allowance per tax year
6th April 2025 – 5th April 2026 £500
6th April 2024 – 5th April 2025 £1,000
6th April 2018 – 5th April 2024 £2,000
6th April 2016 – 5th April 2018 £5,000

Reporting dividends

Once your dividend payouts go over your tax allowance, you’ll need to declare them to HMRC. This is typically split into the following steps:

Your dividends are up to £500

You don’t need to take any action for this, as you’re within your dividend allowance for the tax year.

Your dividends are £500 to £10,000

If you plan to fill in a Self-Assessment tax return, you just need to declare your dividend amount on your form.

But if you don’t use this method, either give HMRC a call on their helpline: 0300 200 3300.

Or ask them to update your tax code to deduct your dividend tax in that way: www.gov.uk/find-hmrc-contacts/income-tax-enquiries

Your dividend payments are over £10,000

You’ll need to complete a Self-Assessment tax return. If you haven’t done this before, don’t worry; it’s simple to register, just remember to do so by 5th October 2026 (for dividends received in the tax year 6th April 2025 – 5th April 2026).

Here’s a link to the Gov.uk page to help you: www.gov.uk/self-assessment-tax-returns

Example of a company director’s salary and dividends tax

So, how could the director of a Limited Company choose to receive their salary versus dividend payments? If you’re curious, here are a couple of strategies that someone who’s classified as an ‘office holder’ by HMRC could follow.

If the director isn’t on a standard salaried contract, this means they can choose to receive their income how they’d like to; whether that’s by taking their full amount as a salary, taking a smaller salary and a larger amount of dividends, or taking the majority of their income as dividends.

Depending on what type of income they receive, this can affect their tax treatment. See the breakdown below, as an example:

Taking a full salary (no dividends)

Type of income: Income tax band: Dividend tax rate: Details:
Their total income is a £50,000 as a salary (£0 in dividends). The total income is below £50,271 making them a basic tax rate taxpayer:

(£12,570 at 0% + £37,430 at 20%)

Amount taxed:

£7,486

Note: Tax bands work differently in Scotland. See the Scottish tax rate bands here.		 N/A The director is not contracted to receive dividends and has opted to receive £50k via salary

National Insurance (NI): Their National Insurance contribution is made through PAYE (Pay As You Earn).

Corporation tax: The Company can reduce its Corporation Tax liability through paying its director’s salary. Salaries and employer NI costs can be offset against profits (reducing the total applicable for Corporation Tax).

Taking a low salary with the remainder as dividends

Type of income: Income tax band: Dividend tax rate: Details:

Their total income is £50,000.

Consisting of:

1. Salary of £12,570 (the same as the tax-free Personal Allowance amount).

2. The remaining £37,430 in dividend income.

 Tax rate N/A. Salary amount is below the basic income tax threshold (£12,571).

Total income tax due: £0.00		 8.75% with a tax-free band of £500

Amount taxed: £3,231.37

Their salary has not met the basic income tax band threshold of £12,571. (Although tax treatments depend on individual circumstances; this is an example of someone with a standard 1257L tax code).

National Insurance (NI): With a salary income of £12,570, the director would receive National Insurance (NI) credits toward their State Pension without having to pay additional National Insurance contributions themselves, as long as their earnings are above the Lower Earnings Limit (currently £6,396/year).

Corporation tax: Paying directors via salary instead of dividends can reduce a company's Corporation Tax liability.

This is because a salary (including employer National Insurance) is treated as a business expense and is deducted from profits before Corporation Tax is calculated.

In contrast, dividends are paid from profits after Corporation Tax has been applied.

Taking the majority as dividends

Type of income: Income tax band: Dividend tax rate: Details:

Their total income is £50,000.

Consisting of:

1. Salary of £1.

2. Plus, the remaining £49,999 in dividends.

 N/A. Under the basic income tax threshold.

Total income tax due: £0.00		 8.75% with a tax-free band of £500

Amount taxed: £4,311.16		 Their salary has not met the basic income tax band threshold (£12,571).

National Insurance (NI): Their £1 salary does not meet the Lower Earnings Limit to entitle them to accrue National Insurance contribution benefits. However, they can choose to make voluntary NI contributions to counter this.

The company will only pay employer National Insurance Secondary contributions once the Director’s salary exceeds £5,000.

Corporation tax: Paying directors via mostly dividends would not reduce a company's Corporation Tax liability as much.

This is because salary (including employer National Insurance) is treated as a business expense and deducted from profits before Corporation Tax is calculated. In contrast, dividends are paid from profits after Corporation Tax has been applied.

The above tables are illustrative examples for comparison only. Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future. Wealthify does not provide financial advice. Please seek financial advice if needed.

Opportunities for tax-efficiency

If you’re not a company director (not yet anyway), it doesn’t mean all this talk of tax and allowances hasn’t piqued your interest. There are still tax-efficient options available to everyone who’s a UK tax resident. Here are some of the popular ones:

Self-Invested Personal Pensions (SIPPs) and their 20% top-up

If you open a SIPP and opt into the government tax relief top-up, you’ll get an extra 20% added for every contribution you personally make. There’s an annual pension allowance to take into consideration (£60,000 or your income amount, whichever is lower, including contributions from you, the government and your employer, if applicable), but this is a helpful way to counter the tax you’ve already paid on your money.

And when the time comes to retire, the first 25% of your pension pot withdrawals will be tax-free. Then the remaining 75% is charged at the appropriate income tax band rate.

Learn more about Wealthify’s Self-Invested Personal Pension

Utilise your child’s Junior ISA allowance

Junior ISAs are a handy way to save or invest for your child’s future. Much like an adult version of an ISA, children are entitled to a Junior ISA and an annual £9,000 tax-free allowance.

The money belongs to the child for them to access at 18.

But, if you’re already using your own £20,000 ISA allowance to save for your child, this could be something to consider instead.

By paying into a Junior Cash ISA* or Junior Stocks and Shares ISA (they are allowed one of each with the combined £9,000 allowance spread over both), you can then free up your own £20,000 for the tax year to save or invest in yourself.

Learn more about Wealthify’s Junior Stocks and Shares ISA

* Note: Wealthify does not offer a Cash Junior ISA.

Your own ISA allowance

Your £20,000 per tax year allowance is yours for the taking.

It’s your opportunity to grow your money in a tax-free manner, with no capital gains tax or income tax to pay on the money held within your account (no matter how large the pot builds up to).

You can now have multiple types of ISAs in the same tax year* with different providers; from Stocks and Shares for investing, to Cash ISAs for emergency savings. All you need to do is remember to keep your £20,000 spread over the ISAs as a maximum (you don’t get £20,000 per account).

*Lifetime ISAs are the exception to this rule, as you’re only allowed to have one of those at any time, and it caps your deposits at £4,000 per tax year. However, you can still use your remaining ISA allowance in another type of ISA after that.

Check out our Stocks and Shares ISA

After you’ve maxed out your ISA

If you can afford to use your entire £20,000 in this tax year, you may be considering what to do next.

Many people use a General Investment Account to continue with their investment journey, taking into account the Personal Savings Allowances:

  • Basic rate taxpayers get a Personal Savings Allowance of £1,000 that they can earn in interest.
  • Higer rate taxpayers get a £500 Personal Savings Allowance.
  • Although, additional rate taxpayers don’t get any Personal Savings Allowance.

Researching the best investment provider

Whether opening a new one or transferring an existing product to a new provider; if you’re ready to consider a potentially new tax-efficient account, researching the pros and cons is worth doing.

Here are some things to consider when comparing a new provider:

  • Fees
    There may be ongoing fees for using their platform and for investing on your behalf. We keep our costs simple and transparent; see our fees in detail here.
  • Exit charges
    Your existing provider may charge a fee to leave or transfer to a new provider, so factor this into your decision-making. (Good to know: Wealthify doesn’t charge for transfers in or out.)
  • Ease of use
    Research how existing customers rate their service. Is it easy to use, and does it suit your needs? Wealthify has a handy app to help you monitor your money, as well as an online dashboard to log into from a web browser.
  • Ethical investing options
    We offer ethical investing on all our investment products. With Wealthify, you can easily opt for an Ethical Investment Plan instead of our Original investing route.
  • Your time vs your energy
    Time is precious, and not everyone has an abundance of it to spend monitoring the stock market. While some avid investors can dedicate their time tracking and reacting to the markets in a DIY fashion, that’s not suitable for everyone. At Wealthify, we offer a time-effective solution, letting our in-house, expert Investment Team manage your portfolio for you.

   

Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.

Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

Resources:

https://www.gov.uk/tax-on-dividends

https://www.gov.uk/tax-on-dividends/how-to-report-tax-on-dividends

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