The dividend tax allowance was first introduced in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance. Tax was payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and has remain fixed at that level ever since.
This means that the tax rates for dividends received in 2022-23 (in excess of the dividend tax allowance) are taxed as follows:
- 8.75% for basic rate taxpayers will pay tax on dividends;
- 33.75% for higher rate taxpayers will pay tax on dividends; and
- 39.35% for additional rate taxpayers will pay tax on dividends.
These figures include the 1.25% increase in dividend tax rates that came into effect on 6 April 2022 alongside the 1.25% increase in NIC contribution rates. H M Treasury has confirmed that the plan to cut dividend tax rates from April 2023 announced as part of the mini-budget measures has been cancelled.
It remains to be seen if any further changes to the way dividends are taxed will be announced as part of the Autumn Statement. It is possible that there could be further increases in the tax rates or a reduction in the tax-free dividend allowance.
Dividends that fall within your Personal Allowance do not count towards your dividend allowance and you may pay tax at more than one rate.
If you receive up to £10,000 in dividends you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension or you can enter the dividends on your Self-Assessment tax return, if you already fill one in. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.
If you have received over £10,000 in dividends, you will need to complete 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 in which you had the relevant dividend income.
