UK Dividend Tax Guide — 2024/25 Rates and How to Calculate

Updated October 2026 · 4 min read

Dividends are a tax-efficient way for limited company directors to extract profits. But the tax-free allowance has been cut dramatically in recent years — from £2,000 in 2022/23 to just £500 in 2024/25. Understanding the rates is essential for director salary planning.

UK Dividend Tax Rates 2024/25

The Optimal Director Salary + Dividend Split

Most limited company directors pay themselves a salary just above the NIC Secondary threshold (£9,100 in 2024/25) to preserve State Pension entitlement while minimising NIC, then take remaining profits as dividends. This typically means:

• Salary: ~£9,100–£12,570 (no employee NIC below £12,570)
• Dividends: up to the basic rate band limit (£50,270 total income) at 8.75%
• Combined effective rate: roughly 20–26% on most director income — compared to 40%+ for PAYE

Dividends vs Salary — Corporation Tax Impact

Salary is a deductible business expense — it reduces corporation tax. Dividends are paid from post-CT profits. At 25% CT (main rate), paying an extra £1,000 as salary saves £250 in CT but costs ~£138 in NIC. The net saving depends on your personal tax position — always model both scenarios before deciding.