Tax on UK dividends
What is a dividend? To put it simply, a dividend is money that a limited company pays to its shareholders. Only limited companies can pay dividends; partnerships and sole traders cannot. Many limited companies pay regular…
5 Minute Read
Last Updated: 9th February 2022
What is a dividend?
To put it simply, a dividend is money that a limited company pays to its shareholders. Only limited companies can pay dividends; partnerships and sole traders cannot. Many limited companies pay regular dividends to shareholders on a quarterly basis, and if you have a considerable number of shares, this can certainly add up. Income from such investment is taxable and there are three different rates. Today, SimpleTax will explain the different income tax rates on UK dividends.
Different dividend tax rates
Much like regular income there are different income tax rates on UK dividends. The rate you pay is determined on whether you fall in the basic or higher rate of income tax.
For tax year 2012/2013:
Basic rate taxpayers – Dividend income at or below £34,370 is payable at 10%
Higher rate taxpayers – Dividend income at or below the £150,000 is payable at 32.5%
Additional rate taxpayers – Dividend income above £150,000 is payable at 42.5%
Dividend tax credit
Because limited companies pay dividends from company profit, dividend income IS taxable. This is where the dividend tax credit comes into play. The dividend tax credit is available to shareholders to offset the tax charge due on their dividend income.
Dividends are paid at 90% (1/9) of the amount you actually receive as a shareholder. The remaining 10% is tax credit.
So, here’s how it works:
Basic rate – For basic rate taxpayers, you have no tax to pay! This is because the tax liability is the same as the tax credit (both 10%), so the entire tax is satisfied by the tax credit.
For example:
Income – £1000
Tax (10%) – £100
Tax credit (10%) – £100
Tax payable – £0
Higher rate – If you fall into the higher rate, then you have to pay 32.5% on dividend income, of which you receive a 10% tax credit. In practice, the higher rate has an additional tax liability to account for, amounting to 22.5% of the gross dividend.
Income – £1000
Tax (32.5%) – £325
Tax credit (10%) – £100
Tax payable – £225
Additional rate – If you fall in the additional rate, you pay 42.5% on dividend income, of which you receive, a 10% tax credit. In practice, the additional rate has an additional tax liability to account for, amounting to 32.5% of the gross dividend.
Income – £1000
Tax (42.5%) – £425
Tax credit (10%) – £100
Tax payable – £325
If you receive dividend income, whether you pay tax or not, you must declare dividend income each year via self-assessment. But don’t worry, SimpleTax is here to make things extra easy. Take the hassle-free route to filing your taxes; Go SimpleTax
View our Guide to Self Assessment Tax Returns
Trusted by over 15,000 subscribers
You don't need to be an expert to complete your self assessment tax return.
Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.
DOING YOUR TAX RETURN HAS NEVER BEEN SO EASY.
Start your Self Assessment tax return today for free.
Sign up Now6 great reasons to use GoSimpleTax to get your Self Assessment tax return done
06 Jan 2023
Avoid mistakes on the more complicated parts of your SA100 tax return
06 Jan 2023
Introduction of Making Tax Digital for ITSA delayed until April 2026
03 Jan 2023
How GoSimpleTax Works
Register
Simply register for free with your full name and email address.
Select Your Income
Select the income you receive and follow the hints and tips for potential tax savings.
Validate Your Information
Validate your personal information and submit directly to HMRC to get confirmation in just seconds.
Work Anywhere, With Any Device
Gone are the days of fretting over a calculator surrounded by scraps of paper at the eleventh hour.
GoSimpleTax’s tax return software uses the information you upload in real time to calculate your income and expenditure, working out the tax you owe and sending you helpful notifications when there’s the possibility of a mistake.
"The software is intuitive and proved very easy to navigate. I found the whole process refreshingly simple. I saved a lot of money too!"
Steve J.
Ordained Presbyter
"Easy to use and value for money. Everything you need to do your tax."
Gordon J.
Self Employed
"It fills in all the forms and sends them to the Inland Revenue. Not expensive either. Takes the stress out of doing your tax return online."
Ross G.
Team Rector