📊 Full Tax Breakdown
UK Dividend Tax Rates 2025/26
Dividend Allowance: The first £500 of dividend income is tax-free (reduced from £1,000 in 2023/24 and £2,000 in 2022/23).
Basic Rate (8.75%): Dividends falling within the basic rate band (up to £50,270 total income).
Higher Rate (33.75%): Dividends falling within the higher rate band (£50,270–£125,140).
Additional Rate (39.35%): Dividends above £125,140 total income.
Dividends are taxed after salary and other income, using up your personal allowance and basic rate band first. This is why many limited company directors take a salary of £12,570 (using the full personal allowance) and then take the rest as dividends.
For 2025/26, many accountants recommend a salary of £12,570 (uses personal allowance, no tax, minimal NI) plus dividends for the rest. This keeps dividend income within the basic rate band where possible, taxed at just 8.75%.
No. National Insurance is not payable on dividend income — only on employment earnings. This is one of the key tax advantages of the salary-plus-dividends structure for company directors.