What are the dividend tax rates in the UK?

To calculate how much tax you need to pay on dividends, simply add your income from dividends to your all other income (employment, etc.) and work out your income tax band.

In 2018/2019 the dividend tax rates are:

  • 0% on the first £2,000 from dividends (the Dividend Allowance)
  • 0% if your total income is under the Personal Allowance (£11,850)
  • 7.5% if you’re a basic rate taxpayer
  • 32.5% if you’re a higher rate taxpayer
  • 38.1% if you’re an additional rate taxpayer.

Where tax on dividends can get confusing

Basically:

  • income gets taxed "in tranches": the first 11k at 0%, then the next 35k at 20%, and so on
  • dividends get taxed in their entirety based on what is your highest tax rate.

Example: How Matthew pays tax on dividends

Matthew receives a director salary of £110,000 and a dividend income of £8,500 from being a shareholder in his company.

How much tax will he pay?

  1. Deduct the Dividend Allowance (£2,000) from the dividend income: £6,500 taxable dividends
  2. His income is above £100,000 so his tax allowance has been reduced from £11,850 to £2,600
  3. His company will pay tax on his director salary via PAYE: £34,360
  4. His income also went over the higher rate threshold so 100% of his taxable dividends will be taxed at 32.5% - the extra tax to pay on the dividends is £2,112.

How about dividends from investments?

Rules are simple here:

  • zero tax on dividends from shares in an stocks & shares ISA
  • but: you do pay tax on dividends from any other shares you own, even if these dividends are reinvested into purchasing new shares - ask your broker or trading platform how they handle dividends from "income stocks".

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