Tax on dividends

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
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

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:

Over £10,000

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.