Are you a company director trying to wrap your head around dividend taxes? You are not alone in this financial maze! Let's break down everything you need to know about UK dividend taxes for the 2025/26 tax year in plain English, with some practical examples that'll make things crystal clear.
Profit, plan & prosperThink of dividends as your company’s way of sharing its success with shareholders. When your business makes a profit, you can choose to reinvest it or distribute it as dividends. It’s like cutting a cake, the more shares someone owns, the bigger their slice! Every UK company starts with at least one share, but there’s no upper limit. These shares come in different flavours, which are called classes, each with its own special perks. Some might give voting rights at shareholder meetings, while others might offer different dividend arrangements.
Picture this, your company has had a fantastic year, and now it’s time to share the wealth. The board of directors (that might be you!) gets to play Santa Claus, deciding how much of the profit to distribute as dividends. But remember, unlike your Christmas shopping, this needs careful planning and consideration of the company’s future needs!
From April 2025, the tax-free dividend allowance is £500. You can find out more about this and other key changes to the 2025/26 tax year in our ultimate guide to the new tax year. The way dividends are taxed remains the same as other earnings. Here are the dividend tax rates for 2025/26:
| Income Tax Band | Dividend tax rate | Income tax rate |
| Basic rate | 8.75% | 20% |
| Higher rate | 33.75% | 40% |
| Additional rate | 39.35% | 45% |
We’ve got a guide on investment planning that could help you
Think of your income like a layer cake:
1. The bottom layer is your work and pension income
2. Next comes your capital gains
3. Then your savings income
4. And finally, the cherry on top – your dividend income
This “stacking” approach means your dividends might get pushed into higher tax bands. Let’s see how this works with a real-world example.
Sarah runs a successful tech consultancy and takes a salary of £45,000 plus £9,000 in dividends. Here’s how her tax works out:
Employment income (the foundation):
– £12,570 (personal allowance): £0 tax
– Next £32,430 (basic rate at 20%): £6,486 tax
Dividend income (the topping):
– First £500 (tax-free dividend allowance): £0 tax
– Next £4,770 (basic rate at 8.75%): £417.38 tax
– Final £3,730 (higher rate at 33.75%): £1,258.88 tax
Total tax bill: £8,162.26 (plus National Insurance contributions)
In today’s complex financial landscape, having professional guidance isn’t just helpful it is actually crucial. Think of financial advisers and accountants as your GPS through the tax landscape. They help you avoid wrong turns and find the most efficient route to your financial destination.
Ready to master your dividend strategy? Here’s what to do:
Remember, smart dividend planning isn’t just about paying less tax, it’s about building a sustainable financial future for both you and your business.
Need expert guidance? At Unividual, we specialise in creating personalised financial strategies that work for you and your business. Let’s have a chat over coffee and explore how we can help you navigate your financial journey with confidence.
Author: Cherie-Anne Baxter-Blyth, Marketing Director
Date: 11th February 2025
Updated: 11th February 2025
Approver: Quilter Financial Limited TBC
Risk Warnings
The Financial Conduct Authority do not regulate tax planning and some employee benefits.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.
The figures or %s in this article are for the 2024/25 tax year and are correct on the day the article was published.
