Dividend Tax Explained: Understanding Rates and Calculations for 2022-23 and 2023-24

21 Jun 2023

Understanding dividend tax in the UK is crucial for anyone who receives dividends. Dividends are a form of income that individuals can earn from owning shares in a company. Here’s a breakdown of the key points you should know:

Tax-Free Dividend Allowance

  • The tax-free dividend allowance for the 2023-24 tax year is £1,000.
  • It’s important to note that this allowance has been reduced from previous years and will be further reduced in 2024-25.

Tax Rates on Dividends

The tax rates on dividends in the UK have been changed since the previous tax year of 2022-23.

  • Basic rate: 8.75%
  • Higher rate: 33.75%
  • Additional rate: 39.35%

Calculating Your Tax Bill

  • When calculating your dividend tax bill, remember to consider your total income from various sources.
  • HMRC’s stacking method for dividend tax means that dividends are typically taxed at the highest applicable rate based on your total income. This helps ensure a fair and appropriate level of taxation while potentially reducing your overall tax liability. Consider your total income from various sources when calculating your dividend tax bill.

Paying Dividend Tax

  • If your dividend income is up to £1,000, no action is required.
  • For income between £1,000 and £10,000, inform HMRC and adjust your tax code or complete a self-assessment tax return.
  • Dividend income exceeding £10,000 requires an online or paper tax return.

Investment Funds and Dividend Tax:

  • Dividend tax applies not only to shares but also to income from investment funds that invest in equities.
  • Bond funds, which involve buying debts, are taxed as savings income.
  • Understanding the tax implications of different investment funds is important, regardless of whether you’re an investor or not.

By familiarising yourself with dividend tax rates, allowances, and calculations, you can better manage your finances and make informed decisions. Stay updated on changes to the dividend tax allowance and consider seeking professional advice for personalised guidance.

Remember, staying compliant with tax regulations while optimising your financial situation is essential for everyone. If you have any questions, feel free to reach out.

Learn more about Tax on Dividends on the UK Government website: https://www.gov.uk/tax-on-dividends