Dividend Tax Quick Guide

9th May 2017

The changes to the Finance Bill is of importance for small business owners and for the self-employed which aims to reduce dividend tax allowance in the coming next months. It was initially said that tax free dividend allowance would be decreased from £5000 to £2000 but this has been withdrawn following the announcement of the General Election on the 6 June 2017.

Dividend Tax Rates

A dividend tax-free allowance of £5000 per year is allowed. Depending on the Income tax band that you fall into the dividend tax that you must pay will change.

As it stands the Dividend Tax rate which does not include Personal tax allowances for 2017/2018 are as follows.

Dividend tax-free allowance£5000
Basic rate (lowest rate)7.5% on earnings up to £33,500
Higher rate (middle rate)32.5% on earnings up to £150,000
Additional rate (highest rate)38.1% on earnings above £150,000

Dividend payments

If you run a limited company and you are a director of the company with shares in the company, then you may get a dividend payment.
Any dividend that you get form Shares ISAs are tax free.
Please note that any dividends that are considered in your Personal Allowance will not count towards the tax-free dividend allowance of £5000.

Paying Dividend Tax

If you receive a dividend that is less than £5000, then you do not need to pay any tax or inform HMRC.
If you receive a dividend between £5000 -£10 000 then you must inform HMRC. You must also change your tax code and include this in your self-assessment.
If you receive a dividend of over £10 000 then you must register for Self-assessment by 5 October of the following year that you received this income.

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