Speculation is growing that dividend tax rates and allowances may change in the upcoming Budget. For business owners, investors, and anyone who receives dividend income, understanding how the current rules work is essential to plan ahead for the 2025/26 tax year.

Current Dividend Tax Rates (2025/26)

If you receive dividends above the £500 dividend allowance, the following income tax rates apply:

• 8.75% for those in the basic rate tax band

• 33.75% for those in the higher rate income tax band

• 39.35% for those in the additional rate income tax band

Dividends that fall within your Personal Allowance do not count towards your dividend allowance. Depending on your annual income, you may pay dividend tax at more than one rate.

How Much Tax Do You Pay on Dividend Income?

How much tax you pay depends on:

• Your total income (salary, self-employment earnings, investments, etc.)

• Which income tax band you fall into

• Whether your dividend payments are above the £500 dividend allowance

For example, if your company declares a dividend of £8,000 and your other income puts you in the basic rate band, your tax bill will be calculated at 8.75% once your allowance is deducted.

You can use a dividend tax calculator to estimate how much tax you’ll pay based on your personal circumstances.

Paying Dividend Tax

• If you receive dividends up to £10,000, you can either:

  • Ask HMRC to change your tax code so the tax is taken from your salary or pension, or

  • Enter the income on your self-assessment tax return (if you already complete one).

• If you receive dividends over £10,000, you must complete a self-assessment tax return. If you do not usually file one, you need to register with HMRC by 5 October following the current tax year.

Possible Changes in the Next Budget

The dividend allowance has already been reduced significantly in recent years. There is growing speculation that:

• The current £500 tax-free dividend allowance could be abolished entirely.

• Rates of UK dividend tax could increase as the government looks to raise revenue.

These changes would affect limited company directors, shareholders, and anyone relying on dividend payments as part of their income. Understanding your tax position now can help you prepare for possible changes in future tax rules.

Dividends, Investments, and Capital Gains Tax

Dividends are just one type of taxable income. Your personal savings allowance may cover interest from cash savings, bonds, or funds, but not dividend payments.

It is also important to distinguish dividends from capital gains tax (CGT). CGT applies when you sell investments like shares or property for a profit, whereas dividend tax applies when a company distributes profit to shareholders. Both may apply depending on your individual circumstances and overall income tax band.

For help with your dividend tax affairs, use a dividend tax calculator or speak to a professional advisor at HLWA to check how much tax you may need to pay.

Source: HM Treasury | 15-09-2025