If you own shares, you may get income in the form of dividends.
Dividends are a portion of the profits made by the company that issued the shares you’ve invested in.
If you have an investment fund that is invested in shares, then you may get distributions that are taxed in the same way as dividends.
For the tax year 2022/23 the tax-free Dividend Allowance is £2,000 a year.
Dividends above this level are taxed at:
- 8.75% (for basic rate taxpayers)
- 33.75% (for higher rate taxpayers)
- 39.35% (for additional rate taxpayers).
Any dividends received within a pension or ISA are unaffected and remain tax-free.
Basic rate payers who receive dividends of more than £2,000 need to complete a self-assessment return.
- If you receive dividend income of up to £2,000 outside an ISA, you’ll pay no tax on your dividends, even if you’re a higher or additional rate taxpayer.
- If your total income is less than £12,570 (the current personal allowance), any income is covered by your personal allowance. You’ll have no tax to pay as your dividend allowance of £2,000 is untouched.
- If your dividend income is received within an ISA, it will remain tax-free and the dividend allowance will not impact any income you receive.