1. How dividends are taxed
You may get a dividend payment if you own shares in a company.
You don’t pay tax on the first £5,000 of dividends you get in the tax year (from 6 April to 5 April the following year).
Above this allowance the tax you pay depends on which Income Tax band you’re in. Add your income from dividends to your other taxable income when working this out. You may pay tax at more than one rate.
The rules are different for dividends from tax years before April 2016.
|Tax band||Tax rate on dividends over £5,000|
HM Revenue and Customs (HMRC) has examples of how your tax is worked out if you’re over the dividend allowance.
You don’t pay tax on dividends from shares in an ISA.
Dividends that fall within your Personal Allowance do not count towards the £5,000 dividend allowance.
How you pay tax on dividends
How you pay depends on the amount of dividend income you got in the tax year.
Less than £5,000
You don’t need to do anything or pay any tax.
Between £5,000 and £10,000
Tell HMRC by:
- contacting the helpline
- asking HMRC to change your tax code - the tax will be taken from your wages or pension
- putting it on your Self Assessment tax return, if you already fill one in
You’ll need to fill in a Self Assessment tax return.
If you don’t usually send a tax return, you need to register by 5 October following the tax year you had the income.
You’ll get a letter telling you what to do next after you’ve registered.
Selling your shares
You may need to pay tax if you sell your shares.