How dividends are taxed
You may get a dividend payment if you own shares in a company.
You can earn some dividend income each year without paying tax.
You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).
You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.
You do not pay tax on dividends from shares in an ISA.
|Tax year||Dividend allowance|
|6 April 2020 to 5 April 2021||£2,000|
|6 April 2019 to 5 April 2020||£2,000|
|6 April 2018 to 5 April 2019||£2,000|
|6 April 2017 to 5 April 2018||£5,000|
|6 April 2016 to 5 April 2017||£5,000|
The rules are different for dividends before 6 April 2016.
Working out tax on dividends
How much tax you pay on dividends above the dividend allowance depends on your Income Tax band.
|Tax band||Tax rate on dividends over the allowance|
To work out your tax band, add your total dividend income to your other income. You may pay tax at more than one rate.
You get £3,000 in dividends and earn £29,500 in wages in the 2020 to 2021 tax year.
This gives you a total income of £32,500.
You have a Personal Allowance of £12,500. Take this off your total income to leave a taxable income of £20,000.
This is in the basic rate tax band, so you would pay:
- 20% tax on £17,000 of wages
- no tax on £2,000 of dividends, because of the dividend allowance
- 7.5% tax on £1,000 of dividends
How you pay tax on dividends
If you need to pay tax, how you pay depends on the amount of dividend income you got in the tax year.
Up to £10,000 in dividends
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 in your Self Assessment tax return, if you already fill one in
You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.
Over £10,000 in dividends
You’ll need to fill in 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 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.