We sort your Self Assessment for you. £169, all in.

Fast, effortless and 100% online.  Learn more

We sort your Self Assessment for you. £169, all in.

Dividend allowance

  • 2 min read

The dividend allowance is a tax relief that allows you to earn a certain amount from dividends each year, tax-free. 

But what is a dividend?

A dividend is a payment that’s made to shareholders from a company’s (limited company) profit each year. It can only be calculated once Corporation Tax, VAT etc. has been deducted. 

It’s income favoured by many because it’s such a tax-efficient method of taking money from a business. The rate of tax that you pay on dividends is lower than the rate you pay on either your salary or your pension. 

How do dividends work?

Whenever a company creates a dividend, they need to have a meeting with all of the directors to “declare” it and then a voucher is produced with the following information:

  • Date the dividend was paid
  • Value of the dividend
  • Company name
  • The names of all shareholders who are receiving the dividend

What you need to remember about the dividend allowance

  • The dividend allowance in the 2024/25 tax year is £500
  • You only pay tax on the amount of dividends that go above your dividend allowance in that tax year
  • If you earned dividends under the allowance, you don’t need to do anything
  • Dividends on any shares held in a Stocks & Shares ISA are entirely tax-free, so the dividend allowance does not apply to them

Any earnings above the allowance are liable to be taxed at the below rates:

Annual salary Tax bracket Tax rate
Up to £12,570 Personal allowance 0%
£12,571 – £50,270 Basic rate 8.75%
£50,271 – £125,140 Higher rate 33.75%
£125,141+ Additional rate 39.35%

In order to pay tax on your dividends, you’ll need to do a Self Assessment tax return. You can either do this yourself via HMRC online or we can get it sorted for you at TaxScouts. 

TaxScouts Newsletter

Want regular tips from us?

Sign up for important updates, deadline reminders and basic tax hacks sent straight to your inbox.

"*" indicates required fields

This field is for validation purposes and should be left unchanged.