![]() Osborne also said the changes enabled him to reduce the rate of corporation tax.īut whatever his intentions, as we’ve seen today’s regime applies equally to dividends received from ordinary shares. I believe he wanted to remove the incentive for people to set themselves up as Limited Companies simply to use dividends as a more tax-efficient way to get paid, compared to salaries. Then-chancellor George Osborne revamped UK dividend taxation in the Summer Budget of 2015. Why was the old dividend tax system changed? Choose where you hold US shares accordingly.)Īgain, make sure your platform is paying you any US dividends in your pension without any tax having been charged. Your broker should take care of this for you.Īlso, some territories do not charge withholding tax on dividends received in a UK pension. These can at least reduce the total amount of dividend tax you pay. However there are reciprocal tax treaties between the UK and other countries. You may even pay this withholding tax on foreign dividends held within an ISA or pension. Once by the tax authorities where the company is based, and again by Her Maj’s finest in the UK. If you’re paid dividends from overseas companies, you may be charged tax on them twice. Watch out for withholding tax on dividends To avoid taxes reducing your returns use ISAs or pensions wherever possible. Perhaps enough to push you into a higher tax bracket! If you own dividend-paying shares outside of an ISA or pension then the dividends may add substantially to your total income. ![]() Beware of being bounced into a higher tax band (£6,000 minus the £1,000 tax-free dividend allowance).Īs we said, the rate you’ll pay depends on which tax bracket your dividend income falls into. This liability must be declared and paid through your annual self-assessment tax return.įor example, if you received £6,000 in dividends, then tax is potentially charged on £5,000 of it. If your dividend income exceeds the tax-free dividend allowance, you’ll pay tax on the excess. (Enjoy them for the purposes of getting rich.) What tax rate will you pay on your UK dividends? Adding up your dividends to get the total for the year? Do not include dividends paid in ISAs or pensions! Forget about them for the purposes of tax. Dividends paid within ISAs and pensions are ignored with respect to tax. Note: remember, we’re talking about dividends you’re paid outside of tax shelters. But this in turn was scrapped by replacement chancellor Jeremy Hunt when he took office. At that point the tax rate for each band was hiked by 1.25 percentage points.Ī pledge to reverse the hike was made with the Mini Budget of 2022. These dividend tax rates went into effect on 6 April 2022. The rate of tax you’ll pay on your dividends is determined by your income tax band.ĭepending on your total earnings – and where it comes from – you could pay tax at more than one rate on your income. (You read somewhere about the old Dividend Tax Credit system? It was abolished years ago.) Dividend tax rates for 2023-2024 The annual dividend allowance is set to be reduced to just £500. Pretty stingy, but the situation will worsen again from April 2024. This level of dividend is tax-free, irrespective of how much non-dividend income you earn and your tax bracket. The £1,000 dividend allowance means you will only automatically escape dividend tax on the first £1,000 of your dividend income. Like other tax allowances such as the personal allowance for income tax, the dividend allowance runs over the tax year. They do not count towards your allowance. ![]() But breach the allowance and the excess is taxed according to your income tax band.ĭividends received in ISAs and pensions are entirely ignored. That’s down from £2,000 previously.ĭividends you receive within the tax-free dividend allowance are not taxed. The tax-free dividend allowanceĪs of 6 April 2023, the annual tax-free dividend allowance is reduced to £1,000. Using ISAs and pensions is key to shielding your income-generating assets from tax for the long-term.
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