UK Dividend Tax Calculator

Dividends are taxed separately from salary. You get a £500 dividend allowance each year (tax-free). Dividends above that are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate), depending on which income tax band they fall into.

The key thing to understand is that your salary uses up your tax bands first. So if your salary already puts you in the higher rate band, all your taxable dividends will be taxed at 33.75%. This is why director-shareholders often take a low salary combined with dividends to stay within the basic rate band.

Many company directors pay themselves a combination of a low salary (typically £12,570 to use the personal allowance) and dividends on top. This is usually more tax-efficient than taking a large salary because dividends are not subject to National Insurance.

For example, a director taking £12,570 salary plus £40,000 in dividends would pay roughly £3,456 in dividend tax. If they took the same £52,570 as salary instead, they would pay £7,486 in income tax plus £2,994 in NI, a difference of over £7,000. However, the optimal split depends on your specific circumstances, and corporation tax on the company profits must also be considered.

The dividend allowance has been reduced significantly in recent years. It was £5,000 in 2017/18, cut to £2,000 in 2018/19, then to £1,000 in 2023/24, and now just £500 from 2024/25 onwards. This means shareholders pay considerably more tax on dividends than they did a few years ago.