Tax on dividends
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1. How dividends are taxed
You may get a dividend payment if you own shares in a company.
You can earn some dividend income each year without paying tax.
This guide is also available in Welsh (Cymraeg).
You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).
You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.
You do not pay tax on dividends from shares in an ISA.
Dividend allowance
| Tax year | Dividend allowance |
|---|---|
| 6 April 2024 to 5 April 2025 | £500 |
| 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 |
The rules are different for dividends before 6 April 2016.
Working out tax on dividends
How much tax you pay on dividends above the dividend allowance depends on your Income Tax band.
| Tax band | Tax rate on dividends over the allowance |
|---|---|
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
To work out your tax band, add your total dividend income to your other income. You may pay tax at more than one rate.
Example
You get £3,000 in dividends and earn £29,570 in wages in the 2022 to 2023 tax year.
This gives you a total income of £32,570.
You have a Personal Allowance of £12,570. Take this off your total income to leave a taxable income of £20,000.
This is in the basic rate tax band, so you would pay:
- 20% tax on £17,000 of wages
- no tax on £2,000 of dividends, because of the dividend allowance
- 8.75% tax on £1,000 of dividends
Pay tax on up to £10,000 in dividends
Tell HMRC by:
- contacting the helpline
- asking HMRC to change your tax code - the tax will be taken from your wages or pension
- putting it in your Self Assessment tax return, if you already fill one in
You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.
Pay tax on over £10,000 in dividends
You’ll need to fill in a Self Assessment tax return.
If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.
Register for Self Assessment
You’ll get a letter telling you what to do next after you’ve registered.
Selling your shares
You may need to pay tax if you sell your shares.
2. Tax on dividends before 6 April 2016
There were different rules for tax on dividends before 6 April 2016.
Dividend tax rates
The tax you pay depends on which Income Tax bands your dividends are in.
Add your other taxable income to your dividends to work out the band they’re in. You may pay tax at more than one rate.
| Tax band | Effective dividend tax rate |
|---|---|
| Basic rate (and non-taxpayers) | 0% |
| Higher rate | 25% |
| Additional rate | 30.56% |
| Additional rate - dividends paid before April 2013 | 36.11% |
Work out what you owe
You should have got a dividend voucher. This usually shows:
- the dividend amount
- a ‘tax credit’ - this is one-ninth of the dividend
Work out the tax you owe by multiplying the dividend amount by the effective tax rate. Ignore the tax credit.
How you pay tax
If you need to send a tax return, fill in the ‘Dividends’ section in your return. If you do not need to send one, contact the helpline.
HM Revenue and Customs (HMRC) will tell you what you owe based on what you report and the dividend tax rates.