Dividend Tax

: Last Updated: 02 August 2022

This is a freeview 'At a glance' guide to the taxation of dividends.

How do you tax dividend income? An at a glance guide to the dividend allowance and dividend tax rates.

At a glance
Overview and examples

At a glance
Overview and examples

At a glance

Subscribers, for detailed workings and the interaction with other reliefs and allowances, see: Dividend tax (subscriber guide) and Dividend tax: trusts

From 6 April 2022, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).
- Before 6 April 2022, these rates were: 7.5%, 32.5%, and 38.1%.
- See Increases to Dividend tax
A £2,000 tax-free dividend allowance applies from 6 April 2018 (£5,000 in 2016-17 and 2017-18).
- See Dividend tax (subscriber guide) for detail of how the allowance is allocated, and its interaction with the personal allowance.
Dividend tax (subscriber guide) contains details of how foreign dividends and scrip (stock) dividends are reported and taxed.

Finance Act 2016 made major changes to dividend tax from 6 April 2016:

The notional 10% tax credit on dividends was abolished.
A tax-free dividend allowance was introduced.
Dividends above the dividend allowance were taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).
Dividends received by pensions and ISAs were unaffected by the changes.
Dividend income is still treated as the top band of income.
Individuals who are basic ratepayers who receive dividends of more than the dividend allowance and who have not been sent a notice to file a tax return should Notify HMRC of chargeability and complete Self Assessment returns.

Overview and examples

How does this work?

If you have dividend income (dividends held outside of an ISA) of less than the dividend allowance you pay no tax on your dividends, even if you are a higher or additional rate taxpayer. Your dividends are covered by the dividend allowance.

If your total income is less than the personal allowance, your income is covered by your personal allowance and your dividend allowance is effectively unused.

If your dividend income is received through shares in an ISA, as now, these remain tax-free and the dividend allowance will not affect this income.

Example 2022-23

Non-dividend income of £6,500 and dividend income of £12,000
You pay at least £344 more compared to the rules in 2015-16.

	Income	PA	BR band
Non-dividend income	6,500	6,500
Dividend	12,000	6,070	5,930
Total	18,500	12,570	5,930
Less DA			(2,000)
Taxed at 8.75%			3,930
Tax due			£344

Example 2021-22

Non-dividend income of £6,500 and dividend income of £12,000
You pay at least £295 more compared to the rules in 2015-16.

	Income	PA	BR band
Non-dividend income	6,500	6,500
Dividend	12,000	6,070	5,930
Total	18,500	12,570	5,930
Less DA			(2,000)
Taxed at 7.5%			3,930
Tax due			£295

Example 2019-20 & 2020-21

Non-dividend income of £6,500 and dividend income of £12,000
You pay at least £300 more compared to the rules in 2015-16.

	Income	PA	BR band
Non-dividend income	6,500	6,500
Dividend	12,000	6,000	6,000
Total	18,500	12,500	6,000
Less DA			(2,000)
Taxed at 7.5%			4,000
Tax due			£300

Example 2018-19

Non-dividend income of £6,500 and dividend income of £12,000.

	Income	PA	BR band
Non-dividend income	6,500	6,500
Dividend	12,000	5,350	6,650
Totals	18,500	11,850	6,650
Less DA			(2,000)
Taxed at 7.5%			4,650
Tax due			£348.75

Example 2017-18

Non-dividend income of £6,500 and dividend income of £12,000.

	Income	PA	BR band
Non-dividend income	6,500	6,500
Dividend	12,000	5,000	7,000
Totals	18,500	11,500	7,000
Less DA			(5,000)
Taxed at 7.5%			2,000
Tax due			£150

Example 2016-17

Non-dividend income of £6,500 and dividend income of £12,000.
You pay £187.50 more a year in tax than before the changes came in.

	Income	PA	BR band
Non-dividend income	6,500	6,500
Dividend	12,000	4,500	7,500
Totals	18,500	11,000	7,500
Less Dividend Allowance			(5,000)
Taxed at 7.5%			2,500
Tax due			£187.50

Further examples show the impact of the dividend allowance and the interaction of making different claims for allowances:

Non-dividend income of £18,000 and dividend income of £22,000.
Non-dividend income of £42,000 and dividend income of £9,000.
Non-dividend income of £48,500 and dividend income of £5,000.
Salary of £45,000 and dividend income of £14,000.
Salary of £147,000 and dividend income of £15,000.
See Dividends (subscriber guide)

Dividend FAQs

1. How is dividend income taxed when non-dividend income is in excess of the personal allowance? For:

a) Higher rate taxpayer

b) Upper rate taxpayer

2. What is the impact on the loss of the personal allowance at £100,000?

3. What is the impact on the High-Income Child Benefit Charge?

4. How do dividends interact with the savings rate band and the saving allowance?

5. Have you step by step examples?

See Dividends (subscriber guide)

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