Updated on February 23, 2024
When it comes to receiving dividends from your business, shareholders are required to pay dividend tax to HMRC. For UK limited company owners, dividends are generally the most tax-efficient way to withdraw cash from their company. This article covers all you need to know about UK dividend tax in 2024, including how company dividends function, dividend tax rates, allowances, and the process of reporting dividend tax to HMRC.
Curious about the UK Dividend Tax Rates and how much you’ll be paying? Before diving into dividend tax payments, you can make use of your tax-free personal allowance, especially if your sole income source is from investments. In the 2023–24 period, you could potentially earn an additional £12,570 tax-free, in addition to the £1,000 dividend allowance (unchanged from 2022-23). That’s the personal allowance. To estimate your potential tax liability, you can also try our dividend tax calculator.
Understanding Dividend Tax
If you own stocks, you can make money in two ways: by selling them as their value goes up or by getting dividends when a company shares its profits with shareholders. Dividends offer a reliable income stream from your investments, but keep in mind that taxes apply, similar to any other income.
While dividend taxes are generally lower than those on employment or pension income, you can maximize the money you earn from your investments before facing taxes by utilizing your tax-free dividend allowances.
Paying Dividend Tax: A Simple Guide
If your dividends go beyond your TFA in the UK, you’re liable for tax. Dividend tax rates hinge on your income tax band. For the 2023–2024 tax year, here’s the breakdown:
- The first £1,000 in dividends is tax-free.
- Dividends between £12,571 and £50,270 in the basic rate range are taxed at 8.75%.
- Dividends in the higher rate range of £50,271 to £125,139 face a tax rate of 33.75%.
- Dividends exceeding £125,140, falling in the extra rate range, incur a 39.35% tax.
To pay dividend tax, report your dividend income on your tax return. If you’re employed under PAYE, you might need to file a self-assessment tax return for additional dividend tax. Typically, the deadline for filing your tax return is the 31st of January following the tax year’s end.
UK Dividend Tax Rates Explained
|Income Tax Bands
|2023-24 Tax Rate
|2024-25 Tax Rates
|£1 to £37,700
|£1 to £37,700
|£37,701 to £125,140
|£37,701 to £125,140
|Income Tax Rate
|2023-25 Tax Rate
If your dividend earnings surpass your allowance, you’ll be required to pay dividend tax to HMRC. Here are the dividend rates for the 2023–2024 tax year:
|2023-25 Tax Year
Dividend Income Tax Rates: What to Expect
The tax rates on your taxable dividend income depend on your earned and saved income, as dividend income is taxed after these amounts. To find the tax bracket for your dividend income, add it to your earned and saved income.
Dividends have distinct tax rates compared to earned and saved income, as well as other unearned income like rental income. Additionally, all individual taxpayers can benefit from a dividend allowance, a nil-rate band that covers the first £1,000 of dividend income received annually.
Paying Tax on Dividends: A Simple Guide
Online or telephone banking (Faster Payments)Same day or next oneCHAPSSame day or next oneBacsThree working daysDebit cardSame day or next oneCredit card (1.5% charge)Same day or next oneCheque through the postThree working daysExisting Direct DebitThree working daysNew Direct DebitFive working daysPAYE tax code–At the Post OfficeSame day or next oneAt your bank or building societySame day or next one
2023/24 Dividend Allowance Amount
The dividend allowance, representing the total tax-free dividends you can earn annually, operates independently of the personal tax allowance. This means you won’t owe taxes on profits up to the allowance amount, irrespective of additional income. If you receive dividends, you might have observed that the dividend allowance for the 2022–2023 tax year surpasses this year’s threshold.
It’s important to note that the dividend allowance is specific to dividends, while the personal tax-free allowance applies to most income sources, including dividends.