You may get a dividend payment if you own shares in a company.
You can earn some dividend income each year without paying tax.
This guide is also available in Welsh (Cymraeg).
You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).
You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.
You do not pay tax on dividends from shares in an ISA.
Dividend allowance
| Tax year | Dividend allowance |
|---|---|
| 6 April 2023 to 5 April 2024 | £1,000 |
| 6 April 2022 to 5 April 2023 | £2,000 |
| 6 April 2021 to 5 April 2022 | £2,000 |
| 6 April 2020 to 5 April 2021 | £2,000 |
| 6 April 2019 to 5 April 2020 | £2,000 |
| 6 April 2018 to 5 April 2019 | £2,000 |
| 6 April 2017 to 5 April 2018 | £5,000 |
| 6 April 2016 to 5 April 2017 | £5,000 |
The rules are different for dividends before 6 April 2016.
Working out tax on dividends
How much tax you pay on dividends above the dividend allowance depends on your Income Tax band.
| Tax band | Tax rate on dividends over the allowance |
|---|---|
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
To work out your tax band, add your total dividend income to your other income. You may pay tax at more than one rate.
Example
You get £3,000 in dividends and earn £29,570 in wages in the 2022 to 2023 tax year.
This gives you a total income of £32,570.
You have a Personal Allowance of £12,570. Take this off your total income to leave a taxable income of £20,000.
This is in the basic rate tax band, so you would pay:
- 20% tax on £17,000 of wages
- no tax on £2,000 of dividends, because of the dividend allowance
- 8.75% tax on £1,000 of dividends
Pay tax on up to £10,000 in dividends
Tell HMRC by:
- contacting the helpline
- asking HMRC to change your tax code - the tax will be taken from your wages or pension
- putting it in your Self Assessment tax return, if you already fill one in
You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.
Pay tax on over £10,000 in dividends
You’ll need to fill in a Self Assessment tax return.
If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.
Register for Self Assessment
You’ll get a letter telling you what to do next after you’ve registered.
You may need to pay tax if you sell your shares.
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Now, let's delve into the information provided in the article about dividend income and taxation:
-
Dividend Payments:
- If you own shares in a company, you may receive dividend payments.
- Dividend income is a way for shareholders to earn a portion of the company's profits.
-
Tax-Free Dividend Income:
- You do not pay tax on dividend income that falls within your Personal Allowance.
- There is a dividend allowance each year, and you only pay tax on amounts above this allowance.
- Dividends from shares in an Individual Savings Account (ISA) are tax-free.
-
Dividend Allowance for Different Tax Years:
- The dividend allowance varies for different tax years.
- As of 6 April 2023 to 5 April 2024, the dividend allowance is £1,000.
-
Tax Rates on Dividends:
- The tax you pay on dividends above the allowance depends on your Income Tax band.
- Different tax rates apply to basic rate, higher rate, and additional rate taxpayers.
-
Example Calculation:
- An example is provided to illustrate how tax on dividends is calculated based on total income and tax bands.
- Personal Allowance is subtracted from total income, and tax is applied to the remaining taxable income.
-
Reporting to HMRC:
- Depending on the amount of dividends, you may need to inform HMRC.
- Below £10,000 in dividends, you may not need to notify HMRC. Above £10,000, a Self Assessment tax return is required.
-
Selling Shares and Potential Taxation:
- The article hints that selling shares might also lead to potential taxation.
- Further details about the tax implications of selling shares are not explicitly provided but are suggested as something to consider.
In conclusion, understanding the rules and tax implications surrounding dividend income is crucial for investors. It involves assessing the dividend allowance, tax rates, and reporting obligations to HMRC, all of which contribute to a comprehensive understanding of how dividends impact your overall financial picture.
