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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Tax on dividends

If you own shares in a company, there are two ways you can earn money. The shares can grow in value, allowing you to make a gain when you sell them. Companies also distribute the profits they make in the form of a dividend. This is known as dividend income.

Content on this page:

Overview

Generally, if you have taxable dividend income, you should consider the following allowances in working out whether you owe tax on that income:

  • The personal allowance (£12,570 for 2023/24) – this is deducted from your taxable income before tax is calculated. If you are eligible for the blind person’s allowance, this is treated in the same way.
  • The dividend allowance (£1,000 for 2023/24) – this is a nil-rate band which applies only to dividend income and is explained in more detail under the heading: Dividend allowance.

If you still have taxable dividend income after deducting the above, then you will owe tax on that income at the rates which apply to dividend income. For more information, see our page Tax and NIC rates and bands.

Note that the dividend tax rates are lower than the corresponding rates which apply to earned income and savings income.

The rate which applies depends on where the taxable dividend income falls in your ‘stack’ of taxable income:

  1. Taxable dividend income above the dividend allowance and falling within the basic-rate band is taxed at the dividend ordinary rate.
  2. Taxable dividend income above the dividend allowance and falling within the higher-rate band is taxed at the dividend upper rate.
  3. Taxable dividend income above the dividend allowance and falling above the higher-rate band is taxed at the dividend additional rate.

For more information on this, see our Income tax page under the heading Order of taxation.

If you are a Scottish or Welsh taxpayer, you pay tax on your dividend income in the same way as taxpayers from the rest of the UK.

Example

If you have earned income of £20,000, savings income of £5,000 and dividend income of £3,000, your total income is £28,000. The dividend income exceeds the dividend allowance but falls within the basic-rate band. You would therefore be liable to tax at 8.75% on £2,000 of the dividend income. 

Example

Liz has a pension of £20,000 and receives dividends of £500 in 2023/24.

She has to pay tax at 20% on £7,430 of her pension (the amount left once her £12,570 personal allowance is used). However, she does not have to pay any income tax on her dividend income as it falls within the dividend allowance and is charged to tax at 0%.

If Liz received dividends of £11,000 instead, the £1,000 dividend allowance would apply to some of her dividends leaving the remaining £10,000 to be taxed at 8.75%. Liz would have tax of £875 to pay on the dividends and would need to contact HMRC to arrange payment. As her dividends in this case are over £10,000, it is likely that HMRC will ask her to complete a tax return.

Dividends within ISAs

If you have an individual savings account (ISA) that receives dividends, you do not need to include the ISA dividends in your income when working out your tax. Dividends from ISAs are not taxable income.

Joint income

If the shares are held in joint names, see our separate guidance on what proportion of the dividend income is taxable on each person.

Dividend allowance

You do not have to pay tax on dividend income which falls within the dividend allowance for that tax year.

Level of the dividend allowance

For 2022/23, the dividend allowance was £2,000 (see GOV.UK for earlier years). For 2023/24, the dividend allowance is reduced to £1,000. It is expected to be reduced further to £500 per year from 2024/25 onwards.

Availability of the dividend allowance

The dividend allowance is available to anyone no matter how much income they have.

How the dividend allowance works

To the extent that dividend income falls into your dividend allowance, it is taxable at 0%, which means you have no tax to pay on it. If you have no tax to pay on your other income either and you make charitable donations under gift aid, you may need to pay a charge.

Income that is within your dividend allowance counts towards your basic or higher rate limits and may therefore affect the amount of personal savings allowance that you are entitled to and the rate of tax you pay on dividend income that exceeds your allowance.

Example

Serenna has earnings of £40,650 and receives dividends of £10,000 in 2023/24. She has to pay tax at 20% on £28,080 of her earnings (the amount left once her £12,570 personal allowance is used). She does not have to pay tax on £1,000 of her dividend income because of her dividend allowance.

However, the dividends that fall within the dividend allowance still use up her basic rate band, so she has to pay tax at 8.75% on £8,620 of her remaining dividend income (£754.25) and at 33.75% on £380 (£128.25). Serenna has to pay £882.50 of tax on her dividend income and needs to contact HMRC to pay it.

Two further examples are given below showing how the personal savings allowance, starting rate for savings, personal savings allowance and dividend allowance interact.

Example

Part 1

Eric (not a Scottish taxpayer) has earned income of £15,000, savings income of £4,000 and dividend income of £1,000 in 2023/24.

He has to pay tax at 20% on £2,430 of his earnings (the amount left once his £12,570 personal allowance is used). He has £2,570 of the starting rate for savings band available as his earned income is less than £17,570. So, the first £2,570 of his savings income is taxable at 0%. As his adjusted net income is £20,000, his personal savings allowance is £1,000. This means that he has a tax rate of 0% on a further £1,000 of his savings income. He must pay tax at 20% on the remaining £430 of his savings income, which is £86. He does not have to pay any tax on his dividend income as it does not exceed his dividend allowance of £1,000. As tax is not deducted at source from savings interest, Eric will have to pay the £86 tax to HMRC another way.

The above example can be represented as follows:

 

Earned income (£)

Savings income (£)

Dividend income (£)

 

15,000

4,000

1,000

Minus: personal allowance

-12,570

0

0

 

2,430

4,000

1,000

Tax calculation
 

2,430

@ 20%

486

Starting rate for savings

2,570

@ 0%

0

 

5,000

 

 

Personal savings allowance

1,000

@ 0%

0

Remainder of savings income

430

@ 20%

86

Dividend allowance

1,000

@ 0%

0

Total

 

 

572

Part 2

If Eric instead has earned income of £15,000, savings income of £4,000 and dividend income of £32,000, he has to pay tax at 20% on £2,430 of his earnings (the amount left once his £12,570 personal allowance is used). He has £2,570 of the starting rate for savings band available as his earned income is less than £17,570.

So, the first £2,570 of his savings income is taxable at 0%. As his adjusted net income is £51,000, his personal savings allowance is £500. This means that he has a tax rate of 0% on a further £500 of his savings income. He must pay tax at 20% on the remaining £930 of his savings income, since it falls into the basic rate band – £186 tax. He does not have to pay tax on £1,000 of his dividend income as it falls within his dividend allowance. He must pay tax at 8.75% on £30,270 (this is the amount of dividend income above the dividend allowance but which falls within the basic rate band) (£2,648.62 tax) and at 33.75% on £730 (the remaining dividend income, which falls within the higher rate band) (£246.37 tax) of his dividend income.

As tax is not deducted at source from savings interest, Eric will have to pay the £186 tax on his savings interest and the £2,894.99 tax on his dividend income to HMRC another way.

Again, the above can be represented as follows:

 

Earned income (£)

Savings income (£)

Dividend income (£)

 

15,000

4,000

32,000

Minus: Personal Allowance

-12,570

 

 

 

2,430

4,000

32,000

Tax calculation
 

2,430

@ 20%

486

Starting rate for savings

2,570

@ 0%

0

 

5,000

 

 

Personal savings allowance

500

@ 0%

0

Remainder of savings income

930

@ 20%

186

Dividend allowance

1,000

@ 0%

0

Dividend income chargeable at basic rate

30,270

@ 8.75%

2,648.62

Basic rate band

37,700

 

 

Dividend income chargeable at higher rate

730

@ 33.75%

246.37

Total

 

 

3,566.99

Example

In 2023/24, Finlay (who is not a Scottish taxpayer) has employment income of £48,650, savings income of £800 and dividend income of £6,000. If he deducts his personal allowance in full against the employment income, the position is as follows:

 

Earned income (£)

Savings income (£)

Dividend income (£)

 

48,650

800

6,000

Minus: personal allowance

-12,570

 

 

 

36,080

800

6,000

Tax calculation
 

36,080

@ 20%

7,216

Personal savings allowance

500

@ 0%

0

Remainder of savings income

300

@ 20%

60

Dividend allowance

1,000

@ 0%

0

Remainder of dividend income

5,000

@ 33.75%

1,687.50

Total

 

 

8,963.50

However, the law allows you to deduct the personal allowance in the most beneficial way. If Finlay deducted only as much of his personal allowance against his employment income such that £37,700 of his employment income is charged to tax at 20%, the personal savings allowance and dividend allowance save tax at higher rates:

 

Earned income (£)

Savings income (£)

Dividend income (£)

 

48,650

800

6,000

Minus: Personal Allowance

-10,950

-300

-1,320

 

37,700

500

4,680

Tax calculation
 

37,700

@ 20%

7,540

Personal savings allowance

500

@ 0%

0

Dividend allowance

1,000

@ 0%

0

Remainder of dividend income

3,680

@ 33.75%

1,242

Total

 

 

8,782

By doing this, Finlay is able to save tax of £181.50 (£8,963.50 less £8,782).

Tax credits and universal credit – dividend treatment

Dividends are counted as income for tax credits purposes, even where they fall within your dividend allowance. This is because those dividends are still taxable income, even though they are charged to tax at a nil rate.

For universal credit, dividend income is ignored, and your shares are treated as capital.

Deduction of tax at source

You receive UK dividends gross – no tax is deducted at source. This means that the amount the company declares as a dividend and pays to its shareholders is the gross dividend. This is the amount you include in your taxable income, when you work out how much tax you have to pay. So, if the company pays you a dividend of £100, this is the gross dividend, which you must include in your tax calculation.

If you owe tax on your dividend income

Taxpayers are not required to notify HMRC of their dividend income if dividends fall wholly within the dividend allowance for that year.

However, if you have dividends not covered by the dividend allowance, you should either:

  • notify HMRC, if HMRC have not asked you to fill in a tax return for the year, or
  • include those dividends in the relevant section of your tax return.

Further examples

The examples below demonstrate how to work your tax in situations where you have three different types of income: earned income, savings income and dividend income. 

Example

Adam has total taxable income of £18,900, made up of £16,500 wages and £1,400 savings and £1,000 dividends.

His tax can be worked out as follows:

 

£

Earned income

16,500

Minus: personal allowance

-12,570

Earnings on which tax is charged

3,930

Tax on earned income: £3,930 @ 20%

786

Of the £5,000 starting rate for savings band, £3,930 has been used up by the earned income above his personal allowance, so £1,070 remains for Adam to use for his savings income; in addition, since Adam’s income (£18,900) all falls within the basic rate band, he is entitled to the £1,000 personal savings allowance. Adam also has a £1,000 dividend allowance:

 

£

£1,070 @ 0% (starting rate for savings)

0

£330 @ 0% (personal savings allowance)

0

£1,000 @ 0% (dividend allowance)

0

Total tax due (including tax due on non-savings, non-dividend income)

786

Example

Rupa has total taxable income of £28,900, made up of £21,500 wages and £1,400 savings and £6,000 dividends.

Her tax can be worked out as follows:

 

£

Earned income

21,500

Less: personal allowance

-12,570

Earnings on which tax is charged

8,930

Tax on earned income:
£8,930 @ 20%

1,786

All of the £5,000 starting rate for savings band has been used up by the earned income above her personal allowance. Since Rupa’s income (£28,900) all falls within the basic rate band, she is entitled to the £1,000 personal savings allowance. Rupa also has a £1,000 dividend allowance:

 

£

£1,000 @ 0% (personal savings allowance)

0

£400 @ 20% (£1,400 taxable savings income less £1,000 personal savings allowance)

80

£1,000 @ 0% (dividend allowance)

0

£5,000 @ 8.75% (£6,000 dividends less £1,000 dividend allowance)

438

Total tax due (including tax due on non-savings, non-dividend income)

2,304

Rupa will have to make sure that HMRC know that she has both savings and dividend income on which she will have to pay tax. HMRC will probably collect the tax through Rupa’s PAYE code or through self assessment, by asking Rupa to complete a tax return.

Example – higher rate taxpayer

Sam has total taxable income of £51,900, made up of £44,500 wages and £1,400 savings and £6,000 dividends.

Their tax can be worked out as follows:

Savings income

£

Earned income

44,500

Less: personal allowance

-12,570

Earnings on which tax is charged

31,930

Tax on earned income:
£31,930 @ 20%

6,386

All of the £5,000 starting rate for savings band has been used up by the earned income above their personal allowance. Since some of Sam’s income (£51,900) falls within the higher rate band, they are only entitled to the £500 personal savings allowance. Sam also has a £1,000 dividend allowance. Note also that the basic rate band is £37,700; Sam’s earned income has used £31,930 of this band, leaving £5,770 for the savings and dividend income:

 

£

Savings income  
£500 @ 0% (personal savings allowance)

0

£900 @ 20% (£1,400 taxable savings income less £500 personal savings allowance)

180

   
Dividend income

£

£1,000 @ 0% (dividend allowance)

0

£3,370 @ 8.75% (£37,700 less £31,930 earned income, £1,400 savings income and £1,000 dividend allowance)

295

£1,630 @ 33.75% (£6,000 dividends less £1,000 dividend allowance and £3,370 dividends in basic rate band)

550

Total tax due (on non-savings/non-dividend, savings and dividend income)

7,411

Note that some of the dividend income exceeding the dividend allowance is taxable at the higher rate. This is because the income that falls within the personal savings allowance and the dividend allowance still uses up the basic rate band.

More information

There is information about how dividends are taxed, including some simple examples, in the guidance on GOV.UK.

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