What is Dividends?

A dividend is a payment that a company can make to its shareholders if it’s made a profit. Usually, dividends must be paid to all shareholders. A shareholder is a person, company or organisation that owns shares in a limited company. The company does not pay tax on dividend payments, but shareholders may have to pay Income Tax on shares received if they’re worth more than £500 (the 2024/25 Dividend Allowance).  

Dividend income is income you receive from dividend payments from shares you own in a company. You can earn up to £500 a year (2024/25 tax year) from share dividend income without having to pay any tax. You also get a Personal Allowance of £12,570 for the 2024/25 tax year, so you can add that to your share allowance. No tax is payable on dividends from shares in a stocks and shares ISA. 

The amount of Income Tax payable on dividend income above the dividend allowance (£500) is determined by the Income Tax Band into which your total taxable income falls.  

• If you’re a basic-rate Income Taxpayer (£12,571-£50,270 total taxable income a year) you’ll pay 8.75% tax on dividend income above your allowance.  

• If you’re a higher-rate Income Taxpayer (your annual taxable income is £50,271 to £125,140), you’ll pay 33.75%.  

• If you’re an additional-rate Income Taxpayer (your annual taxable income is more than £125,140), you’ll pay 39.35%. 

• You add your total taxable dividend income to your other taxable income to work out which band your income is in. You may pay tax at more than one rate. 

To report and pay tax on taxable share dividend income of up to £10,000 you can contact the HMRC helpline or request that HMRC changes your tax code, or you can report your share dividend income by filing a Self Assessment tax return. To report and pay tax on taxable share dividend income of more than £10,000, you must complete and file a Self Assessment tax return.