What are Dividends?
A dividend is money that's paid out by limited liability companies to investors, usually on a quarterly or annual basis. These payouts are based on the quarterly profits of your company as well as the amount of stock you own.
Dividends are calculated based on profits-what is left in your company after all expenses have been paid-not revenue.
Dividends can be either paid in cash or reinvested into your investment portfolio via dividend reinvestment, or via SCRIP dividends-which allow companies listed on the LSE to give investors additional shares instead of cash payouts.
Dividend tax refers to the rates by which those dividends are taxed according to HMRC. Each year, these tax rates may differ.
A dividend is money that's paid out by limited liability companies to investors, usually on a quarterly or annual basis. These payouts are based on the quarterly profits of your company as well as the amount of stock you own.
Dividends are calculated based on profits - what is left in your company after all expenses have been paid - not revenue.
Dividends can be either paid in cash or reinvested into your investment portfolio via dividend reinvestment, or via SCRIP dividends - which allow companies listed on the LSE to give investors additional shares instead of cash payouts.
Dividend tax refers to the rates by which those dividends are taxed according to HMRC. Each year, these tax rates may differ.
Dividend Tax Rates in 2024
Tax band | Tax rate on dividends over the allowance |
---|---|
Basic rate | 8.75% |
Higher rate | 33.75% |
Additional rate | 39.35% |
The current dividend tax rate is calculated via a combination of your income tax band and a dividend allowance.
To calculate how much to pay in dividends, you have to understand income tax bands. You will have to include dividends into your income to determine your tax band and the amount to pay tax on.
Dividend Tax Allowance:
For the 2023/24 tax year, a tax free dividend allowance of £1,000 is provided. This means that you only need to pay tax on dividends exceeding that amount (or, in other words, you won't need to pay dividend tax if you make less than £1,000).
The tax free dividend allowance for the 2017/2018 tax year was £5,000. Changes that went into effect starting from April 2018 saw the tax free dividend allowance reduced to £1,000.
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 |
Personal Allowance:
For the 2023/24 tax year, the personal allowance or tax free personal allowance is £12,570.
For the 2021/22 tax year, the personal allowance or tax free personal allowance is £12,570.
For the 2020/21 tax year, the personal allowance or tax free personal allowance is £12,500.
Dividend Tax Thresholds:
The dividend tax rates and tax thresholds for the 2023/24 financial year is indicated in the table above.
You may refer to the HMRC website for the dividend tax rates, dividend income tax rates and income tax bands for the previous tax years. You can also use this website to help you find your tax code and calculate your dividend tax bill, dividend tax rates, and dividend tax credit.
Tax Free Allowance and National Insurance Contributions:
You do not need to pay National Insurance Contributions (NICs) on dividends.
Dividend Tax Calculation Examples:
Let's take a quick look at how £175,000 in dividend payments would be taxed in the 2023/24 tax year.
Our example below assumes that your dividends are your only source of income.
- You will pay nothing for the first £1,000 (total income) due to the tax allowance.
- You will pay 8.75% (basic rate) for £12,571 - £50,270.
- You will pay 33.75% (higher rate) for £50,271 to £125,140.
- You will pay 39.35% (additional rate) for over £125,140
So, you would pay a dividend tax amounting to £48 099.
- £0 for the first £1,000 dividend income
- £2,662 for £1,001 - £50,270
- £35,912 for £50,271 -
- dividend income
- £150,000
- £9,525 for + £150,000
- £48,099
That's a total tax rate of 27.4%.
When is Dividend Tax Payable?
The dividend allowance will lower your tax bill regardless of how much you earn in dividends.
Whether you earn £50 or £500,000 in dividends, you won't have to pay taxes on the first £2,000 in dividends.
Our extensive dividends guide talks through everything you need to know about dividends. From different dividend tax rates, how to pay yourself, and when to pay your dividend tax. We'll also walk through common FAQs.
- What are dividends
- Dividend tax rates
- Dividend allowances
- Paying taxes on dividends
- How dividend taxes work
- Dividend FAQs
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How Do I Pay Tax on Dividends?
There are two ways that you can pay dividend taxes.
The exact way that you pay them will depend upon how much you earned in dividends. Dividend taxes are due at the same time as your self-assessment tax return.
Pay Tax on up to £10,000 in Dividends
If you earned under £1,000 in dividends, you don't need to do anything or contact anyone.
But, for amounts between £1,001 and £10,000, you will have to do one of two things.
- Help line: Contact the HMRC helpline
- Self-assessment tax return (or online tax return): Use a Self Assessment tax return
Pay Tax on Over £10,000 in Dividends
Anything you earn over £10,000 requires you to fill out a Self Assessment Tax Return.
You Do not Pay Dividends on Funds in an ISA or Pension
You don't have to pay any dividends on funds in an ISA or a pension. And, you can shelter up to £20,000 in an ISA - making them a unique part of modern share investing.
Since the rule change in 2015, ISAs - which are tax-free savings/investment accounts - can hold up to £20,000 worth of stocks. And, any dividends that are accrued on shares held in your ISA aren't taxed.
Do I Pay Capital Gains Tax on Shares?
Yes and no.
You will pay capital gains tax on shares from a sale, but you do not need to pay capital gains tax on shares held within an ISA or pension.
Our small business accounting guide walks through absolutely everything you need to know if you're considering starting a limited company. From different taxes, limited company advantages/ disadvantages, how to pay yourself, and what your key filing requirements are.
- When to register a Ltd company
- When to register for VAT
- How to take money out of your company
- Dividend tax rates
- Limited company expenses & corporation tax
- Annual accounts and deadlines
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Download our free Dividends Guide
Our extensive dividends guide talks through everything you need to know about dividends. From different dividend tax rates, how to pay yourself, and when to pay your dividend tax. We'll also walk through common FAQs.
- What are dividends
- Dividend tax rates
- Dividend allowances
- Paying taxes on dividends
- How dividend taxes work
- Dividend FAQs
Thanks for downloading our free guide!
We've sent you an email with your guide. You can also schedule time with an accountant below or create an instant online quote.
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