The Ultimate Need-to-Know Guide to Dividend Tax Rules

• Dividends received by pensions and ISA’s are unaffected.

• Dividend income is treated as the top band of income.

• From April 2017, the notional 10% tax credits on dividends is abolished.

• The tax-free dividend allowance will be £2000 from 2018/19. Dividends above this level are taxed at 7.5% (basic rate), 32/5% (higher rate) and 38.1% (additional rate). This mostly affects those who work in very small family businesses, in particular couples who split incomes.

• Individuals who are basic rate payers who receive dividends of a larger amount than £5001 must now complete self-assessment returns.

• The impact of the changes includes taxes for small companies who pay a small salary in aid of preserved entitlement to the state pension.

• If you have a dividend income, held outside of an ISA, of £5000 or less per year, you will pay no tax. This is still the case even if you are a higher rate tax payer. This is because these dividends are covered by the £5000 dividend allowance.

• If your total income is less than £11,000 this is covered by your personal allowance therefore your dividend allowance is effectively unused.

• If you usually don’t send a tax return, you must be registered by 5th October following the tax year you had the income. You will subsequently receive a letter instructing you on what to do next.

• If your dividend income is between £5000 and £10,000 you can pay by:

– Contacting the helpline
– Asking HMRC to change your tax code which will result in the tax being taken from your wages or pension.
– Declaring it on your self-assessment tax return.

• If your dividend income is over £10,000 you must fill in a self-assessment tax return.

For further information and examples of incomes and tax rates, HMRC has published a guideline.

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