Dividends Income

“The Dividend Tax Credit was abolished  in April 2016 and a new £2,000 tax free allowance for dividend income introduced.  The allowance does not reduce total income for tax purposes.  And only applied to dividend income.

The next rates of tax on dividend income above the allowance are:

  • 7.5% for basic rate individuals
  • 32.5% for higher rate individuals
  • 38.1% for additional rate individuals

This enabled everyone to receive up to £2,000 of dividend income.  This is on top of any dividends received on shares held in an ISA.  If an individual earns less than £2,000 of dividend, they will not pay tax.  Dividend tax is in addition to and outside of ISA allowances.


Dividend tax is not affected by the Scottish Rate of Income Tax and is applied at the same rate for all taxpayers across the UK.

An individual with dividends of between £2,000 (anything over the dividends allowance) and £10,000 (the maximum amount of dividends income before the customer is auto-registered for Self Assessment) can have this laibility deducted from their code or added to the End of Year reconciliation calculation if there is also additional PAYE income”

How to pay tax on dividends

How you pay tax on dividends depends on the amount of dividend income you received in the tax year.  If this was less than £2,000, you do not need to do anything or pay any tax.  If it was between £2,000 and £10,000, you need to tell HMRC.  You can do this by contacting the helpline, asking HMRC to change your tax code – the tax will be taken from your wages or pension or put it on your Self-Assessment tax return, if you already fill one in.

If the dividend is over £10,000, you will 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.

You will get a letter telling you what to do next after you have registered.  If you need any help with this please give us a call on 01908 227055″




Last updated 28 Aug 2018