Tax on Dividend Income

Written by Angus, 03 May 2017

From the 2016/17 tax year, the taxation of dividend income changed significantly from the previous rules.

For 2016/17 and 2017/18, every person has a tax-free dividend allowance of £5,000 per year. That will reduce to £2,000 from 2018/19, under proposals announced in the March Budget.

The tax rates for dividends above the allowance are:

Basic rate 7.5%

Higher rate 32.5%

Additional rate 38.1%

The dividend income is added to your other taxable income for the year to work out what rate you pay.

When do I have to report my dividend income to HMRC?

HMRC’s guidance is that if your dividend income is within the tax-free allowance, you do not have to report it to them.

If your dividend income is between £5,000 and £10,000, you should contact their Helpline on 0300 200 3300. You’ll need to give them your National Insurance Number. You can ask them to change your Tax Code to account for the extra income. Alternatively, you can report the income through your Self-Assessment Tax Return, if you already complete one.

If your dividend income is above £10,000, then you will need to complete a Self-Assessment Tax Return.

Please note – this blog contains the personal opinions of Angus Aston as at 3rd May 2017, and is not intended as financial or investment advice.