Dividend Income Print

The actual amount received as a dividend from UK companies is treated as the gross taxable income. There is no longer any notional tax credit attached to dividends from UK companies.

For 2020/21 and 2021/22 there is a tax-free Dividend Allowance of £2,000, regardless of the level of dividend income. On dividends in excess of the tax-free allowance, income tax is charged at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

Example:

Colin receives a dividend of £270,000 during 2021/22. His only other income is his salary of £50,000 from which PAYE tax of £12,460 has been deducted at source.

£
Salary 50,000
Net Dividend 270,000
Gross Income 320,000
Tax Due First 37,700 @ 20.0% 7,540
Next 12,300 @ 40.0% 4,920
Next 2,000 @ 0% 0
Next 98,000 @ 32.5% 31,850
Balance 170,000 @ 38.1% 64,770
109,080
Less Tax deducted under PAYE 12,460
Tax Payable on dividend income 96,620

Although the first £2,000 of dividends is tax-free by virtue of the Dividend Allowance, the dividends within this allowance will still count towards the basic rate or higher rate bands in calculating the tax payable on any dividends in excess of this amount.

The date of payment of dividends, and the amount of dividends paid has no effect on the amount of corporation tax payable by the paying company.

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