Dividends received are subject to taxation as income, although the applied tax rates differ from the formal Income Tax rates. Additionally, individuals can receive dividends up to the annual tax-free dividend allowance. The annual dividend allowance for the tax year 2023-24 is £1,000.
The prevailing tax rates for dividends received (beyond the dividend tax allowance) are as follows:
- 8.75% for dividends within a taxpayer’s basic rate band.
- 33.75% for dividends within a taxpayer’s higher rate band.
- 39.35% for dividends within a taxpayer’s additional rate band.
Dividends covered by your Personal Allowance do not contribute towards your dividend allowance. It’s also possible that you may be subject to multiple tax rates.
If your dividends amount to ¬£10,000 or less, you can request HMRC to amend your tax code with the tax owed being deducted from your wages or pension. Alternatively, you can include the dividends in your Self-Assessment tax return if you are already filing one.
You are not required to inform HMRC if the dividends you receive fall within your dividend allowance for the tax year.
If your dividends exceed £10,000, you will need to complete a Self-Assessment tax return. If you don’t typically complete a tax return, you must register by the 5th of October following the tax year in which you received the relevant dividend income.
Source: HMRC, on 17th October 2023.