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How do UK share dividends work, and how are they taxed?

Have you just become a Director or perhaps your business has discussed with you offering you shares? Or you might be setting up your own limited company. In this article we look at what you should do if you own shares in a company, how dividends work and the taxes that are applied to them.

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What is a dividend tax? A little bit of theory

When a company is formed, it must have at least one share (but there isn’t a maximum). The shares can be a number of different types, called classes. These classes will determine various things like the rights the shareholder has, if they can vote at meetings and how much their dividend might be worth. While dividends can be paid at any time, it’s normally decided at the end of each financial year. The board of directors of a company will decide how much of that year’s profits will be directed towards dividend payments. Any shareholders who have the right to dividend payments will then be paid.

With public limited companies, dividends aren’t linked to the value of the share, and the share price can go up or down independently of the dividend payments. However, shares that normally yield good dividend payments are more likely to be popular.  It’s perfectly normal for a company to use shares as a part of a remunerations package for both directors and staff. It’s also normal for smaller companies to use dividends to distribute some of the profits to directors or staff in a company. If you receive money from dividends, you need to account for this in your self-assessment tax returns, since it won’t have tax automatically deducted.

How are UK dividends taxed?

Dividend rates are based on your income tax rate, for the coming 22/23 tax year, these will be:

Income Tax Band      Dividend tax rate      Income tax rate   
Basic rate  8.75% 20%
Higher rate 33.75% 40%
Additional rate 39.35%  45%

There are a couple of things to note:

  • There is also a dividend allowance, and you only pay dividends of amounts over that. For the 22/23 tax year this will be £2000. If you want to take a wider look at the 22/23 tax year, we’ve got a breakdown of that here.
  • Shares you have in ISAs don’t count towards the total figure you have for the year.
  • There is no ‘married couple’ allowance for dividend allowances, and you can’t transfer the allowance.
  • Selling the share is not part of the dividend tax system, and instead falls into capital gains tax. You can transfer the shares to your married or civil partner without paying any capital gains tax to ensure both of your allowances are used effectively.
  • You may have to pay tax on income you get from dividends which are in funds that invest in shares on your behalf. With mutual funds like investment trusts, unit trusts and open-ended investment companies (Oeics), depending on the assets the trusts hold, taxes will vary.
  • Bond funds are different and income from these will be taxed as savings

We’ve got a guide on investment planning that could help you

How can I calculate my dividend taxes?

The first thing to know is that your taxes are ‘stacked’. Your income from work and pensions and property is placed first, then your capital gains, then savings income and then lastly your dividend income.

This means that dividend income, rather than salary income, will be taxed at the higher rates if you straddle two bands. As tax on dividends is lower than income tax at the same band, that can sometimes allow you to be more tax-efficient.

A hypothetical example to illustrate this:

If someone had a salary of £45,000 and an additional £9,000 was paid from dividends, your calculations would look like this:

Employment income, counted first,

  • Up to £12,570 personal allowance: £0
  • The next £32,430 at the basic rate of 20%: £6,486
  • £35,120 taxed under the 13.25% class 1 NIC: £4,653.40

Dividend income, counted last,

  • £2000 tax free dividend allowance
  • £3,270 left of your basic rate income band at the 8.75% dividend rate: £286.13
  • £3,730 of dividend is ‘pushed into the higher rate of 33.75%: £1,258.88

Giving a total tax bill of £5,912.28

Of course, your own personal situation may be full of factors that will influence your tax bill and so it’s important to be totally clear on the whole picture of your finances. We’ve got a tax guide that you may find helpful.

How do I pay my dividend taxes?

If you earn less than £2000 in dividends, you don’t need to do anything, since you’re under the personal allowance.

From £2000 to £10,000 there are a few options, depending on your circumstances. Firstly, you must inform HMRC. They can then take the money from your tax code or your salary or pension. Lastly, they may suggest a self-assessment tax form, if you’re not already doing one.

If it’s over £10,000, you must fill out a self-assessment form. While they seem simple at first glance, dividends can actually be a complicated asset to build into a strategy. Getting an understanding of your whole unique financial planning picture, including income, savings, investments as well as other assets, allows you to build a plan that will work well for your individual circumstances. These are the types of plans that Unividual specialise in creating for our clients.


The value of investments and the income they produce can fall as well as rise, you may get back less than you invested.

Tax treatment varies according to individual circumstance and is subject to change.

Are you making the best use of your share dividends? Talk to us to get an expert eye on your personal situation.

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