Tax on dividends

How dividends are taxed

You may get a dividend payment if you own shares in a company.

You only pay tax on dividends that go above your dividend allowance in the tax year.

You do not pay tax on dividends from shares in an ISA.

Dividend allowance

Tax year Dividend allowance
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 above your allowance

The tax you pay depends on which Income Tax band you’re in.

Tax band Tax rate on dividends over your allowance
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

Add your income from dividends to your other taxable income to work out your tax band. You may pay tax at more than one rate.

Dividends that fall within your Personal Allowance do not count towards your dividend allowance.

Example You get £3,000 in dividends in the 2019 to 2020 tax year. The dividend allowance is £2,000, so this means you pay tax on £1,000 of your dividends.

Your other taxable income is £35,000. Add this to your dividends of £3,000 and your total taxable income is £38,000.

You pay a rate of 7.5% on £1,000 of dividends because your total taxable income is within the basic tax band.

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 dividends

Tell HMRC by:

You do not need to tell HMRC if your dividends are within your dividend allowance for the tax year.

Over £10,000 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.

  1. Step 1 Check if setting up a limited company is right for you

    1. Check what a private limited company is

    How you set up your business depends on what sort of work you do. It can also affect the way you pay tax and get funding.

    Check if you should set up as one of the following instead:

    1. Get help deciding how to set up your business
  2. Step 2 Choose a name

  3. Step 3 Choose directors and a company secretary

    You must appoint a director but you do not have to appoint a company secretary.

    1. Find out what directors are responsible for
    2. Check who can be a director or company secretary
  4. Step 4 Decide who the shareholders or guarantors are

  5. and Identify people with significant control (PSC) over your company

    For example, anyone with voting rights or more than 25% of the shares.

    1. Find out what counts as a PSC
  6. Step 5 Prepare documents agreeing how to run your company

    You need to prepare a 'memorandum of association' and 'articles of association'.

    1. Find out how to create a memorandum and articles of association
  7. Step 6 Check what records you'll need to keep

  8. Step 7 Register your company

    You'll need to register an official address and choose a SIC code - this identifies what your company does.

    1. Check the rules for company addresses
    2. Check what your SIC code is
    3. Register your company with Companies House

    Most people can register for Corporation Tax at the same time as registering with Companies House.

    If you cannot, register separately with HM Revenue and Customs (HMRC) after you’ve registered your company with Companies House.

    1. Register with HMRC for Corporation Tax