Dividend tax calculator — methodology

The stacking order, which is statutory and not a presentational choice

Income is not taxed in the order it arrives. It is taxed in a fixed order, and dividends sit at the top of it:

earned and other income  →  savings interest  →  dividends

This is why the same £20,000 of dividends costs different amounts to two people with the same total income: the dividends start wherever the income underneath them finished. It is also why a calculator that taxes dividends in isolation cannot be right for anyone with a salary.

Allowances, in the order they are applied

1. The personal allowance is deducted first, and it is not simply set against earnings. The law permits it to be allocated across income types in whichever way produces the lowest bill, and the engine searches that allocation space rather than assuming one. Above £100,000 it tapers away at £1 for every £2 of income, with the result rounded up to a whole pound as the statute requires.
2. The starting rate for savings — a band of £5,000 taxed at 0.00%, reduced pound for pound by non-savings taxable income. It is gone entirely for most people with a salary.
3. The personal savings allowance, which depends on the band you end up in: £1,000 at the basic rate, £500 at the higher rate, and nothing at the additional rate.
4. The dividend allowance of £500. It is a nil-rate band, not a deduction: the covered dividends still occupy space in the bands, so the allowance does not push the rest of your dividends down into a cheaper band.

Rates and allowances

Thresholds are taxable income, after allowances. The Scottish rates apply to earned income only — dividend and savings rates are UK-wide, which is the part most often got wrong.

Sources

• gov.uk — Tax on dividends
• gov.uk — Income tax rates and allowances: current and past
• gov.scot — Scottish income tax rates and bandsThe published page still titles its table “Proposed Bands”. The bands are in force: the Scottish Parliament agreed the Scottish Rate Resolution, motion S6M-20844, on 19 February 2026, and the resolution is the legal authority for the figures used here.
• gov.uk — Tax on savings interestFor the personal savings allowance and the starting rate for savings, both of which change the answer when savings interest is entered.

What it does not do

• Employer National Insurance and student loan repayments. Employee National Insurance on the salary is now included, and so is a take-home figure — this bullet used to disclaim both and stopped being true the moment they were added. A take-home figure without student loan repayments is too high for anyone repaying one.
• Corporation tax on the profits a dividend is paid out of. A director comparing salary with dividends needs both halves; the salary and dividend calculator does the whole chain.
• Pension contributions. Relief at source extends the basic-rate band, which is the main mechanism by which a higher-rate taxpayer reduces a dividend bill, and it is not modelled at all. This page overstates the tax of anyone relying on it.
• Rental profit, foreign income, benefits in kind, the high income child benefit charge, the marriage allowance and the blind person’s allowance.