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 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 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.

Example 2018/19

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

Example 2017/18

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

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.

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 £45,000 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)