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Dividend Tax

Summary of Key Points

  • The July 2015 Budget highlighted a new dividend tax from 6 April 2016.
  • Take care that dividends in your company are properly declared and documented.

The basics

  • The first £2,000 of dividend income in 2022-23 has 0% tax.
  • For basic rate taxpayers, the dividend rate will then be 8.75%.
  • The rates in the higher and top bands will be 33.75% and 39.35%.

Dividends in tax sheltered wrappers such as pensions and ISAs do not count towards the dividend tax.

Take care over declaring dividends

Because of the new tax, it is now more important than ever to ensure that dividends are properly declared and documented.  For example, a dividend declared on 5 April 2022 counts towards tax year 2021-22.  But if that dividend is declared on 6 April 2022 it then falls within 2022-23.

It is not hard to come up with a scenario where the 5 April 2022 dividend is at 0% or 7.5%, but the 6 April 2022 one is at 33.75% or 39.35%.  So getting this stuff right can save shareholders a hefty amount of tax!