Dividend Tax UK: Rates, Allowance, and How to Pay Less

The dividend allowance for 2024-25 is £500, down from £2,000 two years ago. Above that allowance, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate), depending on where they sit in your overall income.

Dividends do not have their own separate band. They stack on top of your other income, so if your salary and other taxable income already use up your basic-rate band, your dividends fall into the higher-rate band even if the dividend amount itself is modest. That is the detail that catches people out.

For company directors, the standard approach is to pay a salary up to the NIC primary threshold of £12,570, which preserves State Pension credits without triggering employer or employee National Insurance, then take the remainder as dividends. The dividend portion carries no National Insurance, which is why it beats an equivalent salary. The exact split worth modelling depends on your marginal rate and any other income.

Dividends received inside a Stocks and Shares ISA or pension are completely tax-free. They do not count towards the £500 allowance and trigger no tax. If you are a higher or additional-rate taxpayer holding dividend-paying shares, shelter them inside an ISA before considering anything more elaborate.