Understanding UK Dividend Tax
Dividends are taxed at lower rates than employment income because they are paid from company profits that have already been subject to Corporation Tax. From April 2024, the dividend allowance was reduced to £500, down from £1,000 the previous year and £2,000 before that.
How Dividend Tax Is Calculated
Your salary uses up your personal allowance and tax bands first. Dividends then sit on top of your salary income. The first £500 of dividends is covered by the dividend allowance. Any dividends above that are taxed at 8.75% (basic), 33.75% (higher), or 39.35% (additional) depending on which band they fall into.
Frequently Asked Questions
What is the optimal salary/dividend split for a Ltd company director?▾
For 2025-26, the most tax-efficient approach is typically to pay a salary of £12,570 (using the full personal allowance with no NI) and take the rest as dividends. This avoids employer NI on the salary and uses the lower dividend tax rates. However, paying a salary at or above the NI Lower Earnings Limit (£6,396) is important to qualify for State Pension credits.
Do dividends count as income for student loan repayments?▾
Not automatically through PAYE. However, if you file a self-assessment tax return, HMRC will calculate student loan repayments on your total income including dividends. This catches many Ltd company directors who take low salaries with higher dividends.
Calclypso Editorial Team
Dividend tax calculations verified against HMRC 2025-26 rates. Last updated: April 2026. This calculator is for estimation purposes only.