What is dividend tax (in the UK)

Dividend tax in the UK is a personal tax on any dividends received over certain levels. It is normally applied to individual or company shares payments exceeding annual allowances.

The level of tax payable will depend upon your annual allowance during the tax year (April 6th to April 5th). Depending on your existing income will determine how much dividend tax you are liable to pay to HMRC.

So what are the allowances currently available !

At present an individual is allowed to earn £ 500 each tax year before any dividend tax is payable. As of December 2025, if we look at the following figures we can see it has been gradually lowered in recent years.

In 2022 / 23: it was set at £ 2,000

In 2023/ 24: it was then reduced to £ 1,000

In 2024 / 25: It was subsequently reduced to £ 500

The amount of £ 500, isn’t a great amount of money and could quite easily be reached by an individual so it is a simple stealth tax payable to HMRC.

So what rates are currently payable !

Once you exceed your personal allowance (£12,570 for most people) and your £500 dividend allowance, you pay tax on dividends based on your income tax band: 

Basic rate tax payer: 8.75% (over threshold of £ 500)

Higher rate tax payer: 33.75% (over threshold of £ 500)

Additional higher rate tax payer: 39.35% (over threshold of £ 500)

Be aware:

In recent budget announcement on 26th November 2025, it was announced that rates will be increased for BR & HR tax payers. With effect from April 2026, being start of new tax year.

So new rates will go from 8.75% to 10.75% (increase of 2%) for Basic rate tax payers

Plus they will go from 33.75% to 35.75% (increase of 2%) for Higher rate tax payers.

The rates for Additional rate tax payers will not be increased.

The increase may not be a great amount for most people, but it all adds up and could become expensive if you do receive a large payment. As we all know, these rates could be further increased in future tax years by current and future governments.

So how can dividends be paid and tax become payable !

• Paid to director from post-tax profits: Dividends are distributions of profit after a company has already paid Corporation Tax. The company does not pay tax on the dividend payment itself, but individual shareholders may owe personal tax.
• Payment to shareholder or investor: Companies listed on stock exchange will normally pay dividends, either quarterly, half-yearly (interim div) or quarterly to shareholders. As an incentive to entice people to invest in them for a regular return.

How can I avoid paying any unnecessary dividend tax !

• Try and put your investments or shares within a tax free efficient wrapper, such as a stocks & shares ISA or personal pension. You can invest £ 20K into an ISA each tax year or personal pension of £ 60K through something called the Annual Allowance (although this is lowered if have any a lower salary).

But be aware – your money in a pension is restricted by something called the Minimum Pension Age (MPA) so you cannot access the money until age 55, although this increase in 2027 to age 57. Any funds invested in a ISA can be accessed straight away. But you consider investing for the medium or long term.

• Transfer Assets to a Spouse/Civil Partner: Married couples and civil partners can transfer shares and investments between themselves tax-free to make use of both partners’ allowances and tax bands.

• Make Pension Contributions: By increasing pension contributions, it can reduce your total taxable income. So potentially keeping you in a lower income tax band and preserving your personal allowance.
• Consider Utilising Tax-Advantaged Schemes: Schemes such as Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) offer specific tax reliefs, including tax-free dividends for VCTs. Note that tax reliefs on VCTs are also reducing from April 2026. These products are normally designed for specialist or advanced investors, so it may be worth seeking advice before investing in these types of investments.
• List amount payable from companies: If you are running your own business, considering reducing the amount payable. So you stay below current allowance, could you afford to forgo any dividends as short term issue and use that money to reinvest in business for long 
  term.

So how do someone pay dividend tax due !

If your dividend income is over the £500 allowance, you will need to inform HMRC. 

• If you earn between £501 and £10,000 in dividends, you can ask HMRC to adjust your tax code so the tax is collected automatically from your salary or pension.
• If you earn more than £10,000 in dividends per year, you must register for and complete a Self Assessment tax return. 

You can check how much tax you may need to pay on the GOV.UK website or by using an online calculator. 

If you do bring yourself, below the annual threshold of £ 500, it could also save any unnecessary paperwork, record keeping or reduced admin. Such as the need to to complete self-assessment form or tax return by 31st January if done online. In relation to previous tax year.

You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.

Remember:

If you found this blog post useful and informative, please check out my other posts on https://moneyminted.co.uk, which covers pensions, investing and investing books that I recommend.

The world of investing and personal finance may appear to be daunting and confusing. But you can achieve your long term goals and aims if you think long term and invest within tax free wrappers.