How Dividends are Taxed

You may get a dividend payment if you own shares in a company.

You can earn some dividend income each year without paying tax.

You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).

You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.

You do not pay tax on dividends from shares in an ISA (external link).

Dividend Allowance 

Working out Tax on Dividends

How much tax you pay on dividends above the dividend allowance depends on your Income Tax band (external link).

To work out your tax band, add your total dividend income to your other income.

You may pay tax at more than one rate.

Example

You get £3,000 in dividends and earn £29,500 in wages in the 2019 to 2020 tax year.

This gives you a total income of £32,500.

You have a Personal Allowance of £12,500. Take this off your total income to leave a taxable income of £20,000.

This is in the basic rate tax band, so you would pay:

• 20% tax on £17,000 of wages 
• no tax on £2,000 of dividends, because of the dividend allowance 
• 7.5% tax on £1,000 of dividends 

How you Pay Tax on Dividends 

If you need to pay tax, how you pay depends on the amount of dividend income you got in the tax year.

Up to £10,000 in dividends 

Tell HMRC by:

• contacting the helpline (external link) 
• asking HMRC to change your tax code (external link) - the tax will be taken from your wages or pension 
• putting it in your Self Assessment tax return (external link), if you already fill one in 

You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.  

Over £10,000 in dividends 

You will need to fill in a Self Assessment tax return.

If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.

You will get a letter telling you what to do next (external link) after you’ve registered.

Selling your Shares 

You may need to pay tax if you sell your shares (external link).

See Also: 

• Tax on dividends before 6 April 2016 (external link)