- You are here:
-
Home
-
Directors
-
Tax-efficient remuneration
-
Private client & estate planning
-
Income, claims & reliefs
- Dividend tax (rules 2016/17 on)
- Last Updated: 05 February 2019
This article summarises the changes to the way in which dividends are taxed since 6 April 2016.
At a glance
What's New?
From 6 April 2018 the tax free dividend allowance reduce to £2,000 (previously £5,000).
Finance Act 2016 changes
Finance Act 2016 included legislation for major changes to dividend tax from 6 April 2016.
see:
Dividends: trusts (subscriber guide)
Dividend tax from 6 April 2016
- The notional 10% tax credit on dividends is abolished.
- A tax free dividend allowance is introduced. £5,000 for 2016/17 and 2017/18 and £2,000 from 2018/19 on.
- Dividends above the div are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate)
- Dividends received by pensions and ISAs are unaffected
- Dividend income are treated as the top band of income.
- Individuals who are basic rate payers who receive dividends of more than the dividend allowance and who have not been sent a notice to file a tax return should notify HMRC of chargeability and complete self assessment returns from 6 April 2016.
Overview and examples
How does this work?
If you have dividend income (dividends held outside of an ISA) of less than the dividend allowance (£2,000 for 2018/19 and £5,000 for 2016/17 and 2017/18 you will pay no tax on your dividends, even if you are a higher rate taxpayer. Your dividends are covered by the dividend allowance.
If your total income is less than the personal allowance, your income is covered by your personal allowance and your dividend allowance is effectively unused.
If your dividend income is received through shares in an ISA, as now, these remain tax-free and the dividend allowance will not affect this income.
Example 2018/19
- Non-dividend income of £6,500 and dividend income of £12,000
- Nearly £200 more tax to pay compared to 2017/18
| Income | PA | BR band | |
| Non-dividend income | 6,500 | 6,500 | |
| Dividend | 12,000 | 5,350 | 6,650 |
| Totals | 18,500 | 11,850 | 6,650 |
| Less DA | (2,000) | ||
| Taxed at 7.5% | 4,650 | ||
| Tax due | £348.75 |
Further example
- Non-dividend income of £20,000 and dividend income of £6,000
- You now pay £75 more a year in tax
| Income | PA | BR band | |
| Non-dividend income | 20,000 | 11,850 | 8,150 |
| Dividend | 6,000 | - | 6,000 |
| Totals | 26,000 | 11,850 | 14,150 |
| Tax on dividend | |||
| Dividend in basic rate band | 6,000 | ||
| Less DA | (2,000) | ||
| Taxed at 7.5% | 4,000 | ||
| Tax due | £300 |
Example 2017/18
- Non-dividend income of £6,500 and dividend income of £12,000
| Income | PA | BR band | |
| Non-dividend income | 6,500 | 6,500 | |
| Dividend | 12,000 | 5,000 | 7,000 |
| Totals | 18,500 | 11,500 | 7,000 |
| Less DA | (5,000) | ||
| Taxed at 7.5% | 2,000 | ||
| Tax due | £150 |
Example 2016/17
- Non-dividend income of £6,500 and dividend income of £12,000
- You pay £187.50 more a year in tax than before the changes came in
| Income | PA | BR band | |
| Non-dividend income | 6,500 | 6,500 | |
| Dividend | 12,000 | 4,500 | 7,500 |
| Totals | 18,500 | 11,000 | 7,500 |
| Less Dividend Allowance | (5,000) | ||
| Taxed at 7.5% | 2,500 | ||
| Tax due | £187.50 |
Further examples show the impact of the dividend allowance (£2,000 (£5,000 to 5 April 2018)) and the interaction of making different claims for allowances:
- Non-dividend income of £18,000 and dividend income of £22,000
- Non-dividend income of £42,000 and dividend income of £9,000
- Non-dividend income of £45,000 and dividend income of £5,000
- Salary of £45,000 and dividend income of £14,000
- Salary of £147,000 and dividend income of £15,000
- See Dividends (subscriber guide)
Dividend FAQs for tax years: 2016/17, 2017/18 and 2018/19
1. How is dividend income taxed when non-dividend income is in excess of the personal allowance?
a) Higher rate taxpayer
b) Upper rate taxpayer
2. What is the impact on the loss of the personal allowance at £100,000?
3. What is the impact on the High Income Child Benefit Charge?
Step by step guidance, see Dividends (subscriber guide)
Do you LOVE our webservice?
Join thousands of firms of accountants, advisers and directors and:
Sign Up Now for FREE Nichola's SME tax-updates
Want to unlock our subscription content? Subscribe Now.
Tax queries: do you need Virtual Tax Partner® support?
Paying too much tax? Need assistance in preparing your tax return? Advice on a tax efficient pay package? Create a family investment company?
Any other taxing problem? Contact Virtual Tax Partner ® support.
