How do you tax dividend income? What is the dividend allowance? What are the dividend tax rates?

Subscribers, for detailed workings and the interaction with other reliefs and allowances, see: Dividend tax and Dividend tax: Trusts.

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

Dividend tax basics

• Dividend income is treated as the top band of income.
• 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%.
• A £1,000 tax-free dividend allowance applies from 6 April 2023.
  • This was £2,000 from 2018-19 to 2022-23 and £5,000 in 2016-17 and 2017-18.
  • From April 2024, Finance Act 2023 reduces the dividend allowance to £500.
  • See Dividend tax for details of how the dividend allowance is allocated and its interaction with the personal allowance. 
• The notional 10% tax credit on dividends was abolished from 6 April 2016.
• The Dividend tax guide contains details of how foreign dividends and scrip (stock) dividends are reported and taxed. 
• Individuals who are basic rate taxpayers 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.

How does dividend tax 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 of now, these remain tax-free and the dividend allowance will not affect this income.

Example 2023-24: 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	6,070	5,930
Total	18,500	12,570	5,930
Less dividend allowance			(1,000)
Taxed at 8.75%			4,930
Tax due			£431

 

Example 2022-23: 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	6,070	5,930
Total	18,500	12,570	5,930
Less dividend allowance			(2,000)
Taxed at 8.75%			3,930
Tax due			£344

 

Further examples in the Dividends guide 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.

Dividend FAQs 

1. How is dividend income taxed when non-dividend income is in excess of the personal allowance?
   • For example, for a higher rate taxpayer and an additional rate taxpayer. 
2. What is the impact of 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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