UK Dividend Tax Calculator 2024-25

What are the UK dividend tax rates for 2024/25?

In 2024/25, the first £500 of dividend income is covered by the dividend allowance and is tax-free. Above that allowance, dividends are taxed according to your income tax band: 8.75% for basic rate taxpayers; 33.75% for higher rate taxpayers; and 39.35% for additional rate taxpayers (income above £125,140). These rates are significantly higher than in prior years — the dividend allowance was cut from £5,000 to £2,000 in 2018, further to £1,000 in 2023/24, and again to £500 in 2024/25. The 1.25 percentage point increase introduced in 2022 has been maintained. Dividends received within an ISA are entirely free of dividend tax at any amount, making ISAs particularly valuable for dividend investors.

How are dividends and salary taxed differently for limited company directors?

Many limited company directors pay themselves a combination of salary and dividends to minimise overall tax and National Insurance. Salary is subject to income tax and NI (both employee and employer Class 1), while dividends are only subject to dividend tax — which has lower rates and no NI. A common strategy is to pay a salary up to the NI primary threshold (£12,570 for 2024/25, the same as the personal allowance) — this avoids both employee and employer NI while the personal allowance covers the salary, resulting in zero tax or NI on the salary. Additional income is then taken as dividends: the first £500 is tax-free, and the rest is taxed at dividend rates. However, the company itself pays Corporation Tax on profits (25% for companies with profits over £250,000 from April 2023) before dividends can be paid, so the overall tax burden is a combination of Corporation Tax and dividend tax.

Do I need to declare dividends on my tax return?

You need to report dividends on a Self Assessment tax return if your total dividend income exceeds the dividend allowance (£500 in 2024/25) OR if you are required to file a Self Assessment return for other reasons. If your dividends are below £500 and you are a PAYE employee with no other Self Assessment obligations, you do not need to file a return. However, if your dividends put you into the higher rate band or are significant, you must file a Self Assessment return by 31 January following the end of the tax year. Basic rate dividend tax (8.75%) is not deducted at source — it is collected through Self Assessment, so it is possible to receive dividends without any tax being automatically deducted, even if tax is owed.

Is it still tax-efficient to run a limited company and take dividends?

The tax efficiency of operating through a limited company has been eroded significantly in recent years. Corporation Tax rose to 25% for profits over £250,000 in April 2023 (with marginal relief between £50,000 and £250,000). The dividend allowance has been cut to just £500. And National Insurance rates and thresholds have changed. Despite this, for many self-employed people a limited company still offers advantages: the ability to retain profits in the company and pay them out in more tax-efficient years; employer pension contributions paid by the company reduce profits and are more tax-efficient than personal contributions; and access to Business Asset Disposal Relief (BADR) on eventual sale. However, the threshold at which incorporation becomes worthwhile has risen — for profits under around £25,000–30,000, many accountants now advise that sole trader status may be simpler and not significantly less tax-efficient.