Dividend tax calculator
Tax on dividends outside a wrapper, with the £500 allowance and the dividend rates that sit below the equivalent income tax bands.
Covers 2026-27 tax year · rates as at 2026-04-06
Dividend tax
Estimate£2,531.00
33.75% on 7,500 above the allowance
- After tax
- £5,469.00
- Dividend allowance
- £500.00
- Effective rate
- 31.64%
| Dividends received | £8,000.00 |
|---|---|
| Dividend allowance | -£500.00 |
| Taxed at 33.75% | -£2,531.00 |
| After tax | £5,469.00 |
- The allowance is £500, down from £2,000 in 2022-23, so far more small shareholders now owe something.
- Dividends inside an ISA or pension are outside this entirely and need no reporting.
On £8,000 of dividends the first £500 is free and the remaining £7,500 is taxed at 33.75% for a higher-rate taxpayer — about £2,531.
How this is calculated
How this is calculated
Dividend rates sit below income tax rates
Dividends are taxed at 8.75%, 33.75% and 39.35% rather than 20%, 40% and 45%, because the company has already paid corporation tax on the profit. That gap is the whole reason company owners take dividends over salary.
tax = (dividends − £500) × band rateThe allowance has collapsed since 2022
It was £2,000 in 2022-23, £1,000 in 2023-24 and is £500 now. A portfolio yielding 4% now crosses the allowance at £12,500 of holdings, where it used to take £50,000.
The band is set by total income, not dividends alone
Dividends sit on top of your other income when deciding which rate applies, so a £45,000 salary plus £8,000 of dividends pushes part of those dividends into the higher rate even though neither figure alone would.
Worked example: £8,000 of dividends, higher-rate taxpayer
| Dividends | £8,000 |
|---|---|
| Band | Higher |
| Allowance | £500 |
|---|---|
| Taxed | £7,500 at 33.75% |
| Tax | about £2,531 |
Held inside an ISA the same £8,000 would carry no tax and no reporting at all, which is worth more than any yield difference between platforms.
What this assumes
- Dividends held outside an ISA or pension.
- Your band is already known from total income.
- UK-resident individual, not a company.
- No foreign withholding tax credited.
Where this commonly goes wrong
- Accumulation funds reinvest dividends automatically but they are still taxable income, so tax is due on money you never saw arrive.
- Crossing £10,000 of dividends means registering for self assessment; below that it can sometimes be collected through your tax code instead.
- Foreign dividends usually suffer withholding tax abroad, and only some of it is recoverable through a treaty claim or credit.
Questions
How much tax do I pay on dividends?
8.75% at the basic rate, 33.75% at the higher rate and 39.35% at the additional rate, after a £500 tax-free allowance. On £8,000 a higher-rate taxpayer owes about £2,531.
What is the dividend allowance?
£500 of dividends a year with no tax. It was £2,000 in 2022-23 and £1,000 in 2023-24, so a portfolio that produced no tax bill three years ago may well produce one now.
Why are dividend rates lower than income tax rates?
Because corporation tax has already been paid on the profits being distributed. The lower personal rates are meant to stop the same money being taxed twice at full rates.
Do I pay dividend tax inside an ISA?
No. Dividends inside an ISA or pension are free of dividend tax entirely and need no reporting, which is usually worth more than any difference in platform fees or fund yield.
Do I need to file a tax return for dividends?
Generally yes above £10,000 of dividend income. Below that HMRC can sometimes collect it by adjusting your tax code, though you still have to tell them the amount.
Should I take salary or dividends from my company?
Dividends carry lower personal rates but no corporation tax deduction, while salary is deductible and builds National Insurance record. The usual answer is a small salary to the NI threshold plus dividends, but it turns on your profit level.
Related tools
Sources
General estimate based on published HMRC rates for 2026-27 tax year. Not tax advice. Confirm your position with HMRC or a qualified adviser.
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