Dividend tax for individual shareholders
Dividend tax bands for UK individual shareholders, allowances and reporting on self assessment.
Dividend tax is the income tax UK individuals pay on dividends received from companies, ranging from 0% under the dividend allowance to 39.35% at the additional rate. The allowance has shrunk dramatically — from £5,000 in 2017-18 to just £500 in 2024-25 — pushing many private-company shareholders and casual investors into self assessment for the first time. This guide is one of several in our limited company finances cluster covering how money moves between a company and its owners.
How dividends differ from salary
A dividend is a distribution of a company’s post-tax profit to its shareholders, paid in proportion to shareholdings. Unlike a salary, dividends carry no National Insurance, are not a deductible business expense for the company, and can only be paid out of distributable reserves. That last point matters: paying a dividend when no profit is available creates an illegal (ultra vires) dividend that HMRC can recharacterise as a loan or salary. If you are weighing the two routes, our salary versus dividends guide works through the trade-off.
Rates and allowances
The first slice of dividends each year sits within the dividend allowance and is tax-free. Above that, dividends are taxed at three rates that mirror your overall income tax band.
| Band | 2024-25 rate | Trigger |
|---|---|---|
| Personal allowance | 0% | First £12,570 of total income |
| Dividend allowance | 0% | First £500 of dividends above PA |
| Basic-rate dividend | 8.75% | Up to £37,700 of taxable income |
| Higher-rate dividend | 33.75% | £37,701 to £125,140 |
| Additional-rate dividend | 39.35% | Above £125,140 |
Dividends are taxed after non-savings and savings income, meaning the rate often jumps mid-dividend if your salary already pushes you into the higher band. The dividend allowance does not reduce your taxable income; it simply applies a 0% rate to the first £500, so those dividends still count when deciding which band the rest of your dividends fall into.
Reporting and paying
How you report depends on the size of your dividend income.
| Annual dividends | Reporting route |
|---|---|
| Less than £500 | No tax due, no reporting needed |
| £500 to £10,000 | HMRC PAYE coding adjustment or self assessment |
| Over £10,000 | Self assessment compulsory |
| Closely held (PSC) shareholding | Self assessment regardless of size |
Tax is due by 31 January following the tax year, with payments on account if your bill is over £1,000. Keep your dividend vouchers — the company must issue one for each distribution, showing the date, the amount and the shareholder — as these are your primary evidence if HMRC opens an enquiry. Where you also hold a loan from the company, watch the interaction with the rules in our director’s loan account guide, as overdrawn balances are sometimes cleared by declaring a dividend.
Sheltering dividends from tax
For shareholders who have flexibility over how shares are held, several wrappers reduce or remove dividend tax entirely.
- ISAs — dividends inside a Stocks and Shares ISA are tax-free, with up to £20,000 invested per year
- Pensions (SIPP) — dividends inside a SIPP are tax-free, and contributions attract tax relief
- Spouse share transfer — gifts to a spouse use both £500 allowances and lower bands
- Reduce salary, increase dividend — see our dividend tax for directors article for the company-side angle
- Time disposals around 6 April to use two tax years’ allowances
- Check scrip dividends versus cash dividends for tax treatment
For owner-managers thinking about the wider picture, our extracting profit tax-efficiently guide shows how dividends combine with salary, pensions and expenses to lower the overall tax cost of taking money out of the company.
Closing thoughts
The dividend allowance freeze means more shareholders need to file each year — start gathering vouchers and broker reports as soon as the tax year ends. Pair this with our self-assessment tax return guide, the limited company vs sole trader article, and the year-end checklist . Cross-check current rates on GOV.UK dividend tax . See pricing for tools that produce dividend vouchers in seconds.