How much tax will I pay on dividends from my limited company?

Full answer

Dividends from your own limited company are taxed under the specific dividend tax rules, which are separate from, but interact closely with, your other Income Tax bands. **The dividend allowance** Everyone gets a £500 tax-free dividend allowance for 2026/27, meaning the first £500 of dividend income each tax year is not taxed, regardless of your other income levels -- though it still counts towards determining which tax band your other dividends fall into. **The dividend tax rates** Above the £500 allowance, dividends are taxed at 10.75% within the basic rate band, 35.75% within the higher rate band, and 39.35% within the additional rate band -- these rates rose by 2 percentage points from 6 April 2026 (previously 8.75%/33.75%/39.35%), so figures from before that date are now out of date. **How dividends stack on top of other income** Dividend income is treated as the TOP slice of your total income, stacked on top of salary, other earnings, and savings income, for the purpose of deciding which band each portion of the dividend falls into -- this means dividends taken alongside a modest salary might mostly fall in the basic rate band, while the same dividend amount taken by someone with substantial other income could largely fall in the higher or additional rate band. **Worked example** A company director takes a £12,570 salary (using up their full Personal Allowance) and £40,000 in dividends. The first £500 of dividends is tax-free. Since their salary already uses the Personal Allowance, the remaining £39,500 of dividends is taxed within the basic rate band (up to £37,700 of taxable income) and then higher rate band for any excess, producing a mix of 10.75% and 35.75% dividend tax on different portions. **Why company directors often use a low salary/dividend mix** Combining a modest salary (often around the National Insurance primary threshold or Personal Allowance) with dividends remains broadly tax-efficient compared with taking everything as salary, because dividends do not attract National Insurance at all, even though the dividend tax rates themselves have increased. **Practical tip** Model your specific salary/dividend split using the Dividend Tax calculator, factoring in Corporation Tax already paid by the company on the profits being distributed, since dividends are paid from post-Corporation-Tax profits, making the overall combined tax burden (Corporation Tax plus dividend tax) the relevant comparison against alternative structures.

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