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

Dividends in the UK are taxed separately from other income. For 2024-25, the dividend allowance is £500 — a sharp reduction from £2,000 just two years ago. Beyond the allowance, rates are 8.75% (basic), 33.75% (higher), and 39.35% (additional).

For company directors, extracting income as salary plus dividends is usually more tax-efficient than salary alone. A common strategy is to pay a salary up to the NIC primary threshold (£12,570) to preserve State Pension credits, then take the rest as dividends. This avoids employer and employee National Insurance on the dividend portion.

Dividends received inside an ISA or pension are completely tax-free. If you have a Stocks and Shares ISA, any dividends paid by companies within it do not count towards your dividend allowance or trigger any tax.