Beware higher rate tax on dividends

tiemadmin • 11 January 2024

Readers are reminded that if the dividends they draw from their company, when added to their other income, exceeds the basic rate Income Tax Band, then much higher rates of dividend tax will apply.

The tax rates for dividends received (in excess of the current £1,000 dividend tax allowance) are as follows:

  • 8.75% for basic rate taxpayers
  • 33.75% for higher rate taxpayers
  • 39.35% for additional rate taxpayers

Dividends that fall within your Personal Allowance do not count towards your dividend allowance and you may pay tax at more than one rate.

If you receive up to £10,000 in dividends you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension or you can enter the dividends on your self-assessment tax return if you are registered under self-assessment. You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends, you will need to complete a self-assessment tax return. If you do not usually send a tax return, you will need to register by 5 October following the tax year in which the relevant dividend income is received.

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