Dividend Tax
Tax payable on dividend income received from shares in UK and overseas companies, above the Dividend Allowance. The rate you pay depends on which income tax band the dividends fall into when added on top of your other income. Dividends are always treated as the top slice of income for this calculation.
How it works
Dividend tax isn't deducted at source the way PAYE income tax is — HMRC collects it either by adjusting your tax code, if the amount is modest and you're also employed, or through a Self Assessment return, where you declare the total dividends received during the tax year. You're responsible for keeping track of what you've been paid, since dividend vouchers or platform tax statements from your broker or company don't automatically get reported to HMRC on your behalf.
Because dividends are treated as the top slice of income, they're taxed after your salary, self-employment profits, and savings interest have already used up your Personal Allowance and lower-rate bands. This means the same £1,000 of dividends can be taxed at a different rate depending on how much other income you have — someone with little other income pays a lower rate on their dividends than someone with a large salary, purely because of where the dividends land in the stack.
Dividends held inside an ISA or pension wrapper are entirely exempt from dividend tax, which is why company directors and investors with significant shareholdings often prioritise sheltering dividend-paying shares in these wrappers first. A common mistake is forgetting that dividends from foreign shares, and reinvested dividends inside a fund, still count towards your total even though no cash reaches your bank account.
Example: A director's dividend tax bill
Suppose a company director's salary already uses up their basic-rate band, taking their non-dividend income right up to the higher-rate threshold of £50,270. They also take £15,000 in dividends from their company during the year.
The first £500 is covered by the Dividend Allowance and is tax-free. The remaining £14,500 sits entirely above the higher-rate threshold, so it's all taxed at the higher dividend rate of 35.75% (the 2026/27 rate): £14,500 × 35.75% = £5,183.75 in dividend tax.
Frequently asked questions
Do I need to tell HMRC about small amounts of dividend income?
If you already complete a Self Assessment return, report your dividend income on it even when it falls within the Dividend Allowance. If you don't file a return and your dividends are fully covered by the allowance, there is normally nothing to do.
Does dividend tax count towards my National Insurance record?
No. Dividend income is not subject to National Insurance and doesn't contribute towards State Pension qualifying years, unlike salary paid through PAYE.
Can I avoid dividend tax by taking a loan from my company instead?
Directors' loans avoid dividend tax in the short term, but loans that remain outstanding when the company's accounts are finalised can trigger separate tax charges on the company, so this isn't a reliable substitute for planning your dividend income properly.
Related Terms
Dividend Allowance
The amount of dividend income you can receive each tax year completely free of tax, currently set at £500.
Dividend Tax Rates
The rates at which dividends are taxed in excess of the Dividend Allowance.
Basic Rate
The standard income tax rate of 20% applied to taxable income between the Personal Allowance and the higher-rate threshold, currently £12,571 to £50,270 in England, Wales, and Northern Ireland.
Higher Rate
The income tax rate of 40% applied to taxable income above £50,270 up to £125,140 in England, Wales, and Northern Ireland.
Additional Rate
The highest income tax rate in England, Wales, and Northern Ireland, charged at 45% on taxable income above £125,140.
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