UK Dividend Tax Calculation

An individual Shareholder receiving Dividends in the UK is taxed under Income Tax.

Please read our Dividends web page for more information regarding the legal aspects of Dividends.

UK Dividend Tax Calculation (2016/17)

Each tax year there is a tax free Dividend Allowance:
• 2021/22: £2,000
• 2022/23: £1,000
• 2023/24:    £500

Dividends over the tax free allowance will be taxed as follows, tax year 2023/24:

• 8.75%   on Dividend income in the Basic Rate 20% band.
• 32.75% on Dividend income in the Higher Rate 40% band.
• 39.35% on Dividend income in the Additional Rate 45% band.

The key words above are in the, ie. the Income Tax bands - these are not separate Dividend bands.

The Savings Allowance of £5,000 is not available to use in the Dividend Tax Calculation.

Dividend Tax for Single Shareholder/Director Companies

Illustration of Dividend Tax in the Basic and Higher Rate Bands.

For 2023/24, the Income Tax Bands are: (GOV UK Tax Banks and Rates)

Income Tax Band	Tax Rate	Income Range
Personal Allowance (*)	0%	£0 to £12,570
Basic Rate	20%	£12,570 to £50,270 (ie. £32,000)
Higher Rate	40%	£50,270 to £150,000
Additional Rate	45%	over £125,140

* Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your Personal Allowance is zero if your income is £125,140 or above.

Example to illustrate how Dividend Tax works within the Income Tax bands.

Note that the tax rules require that the Personal Allowance is firstly set against the Salary, then any "unused" Personal Allowance can be set off against Dividends:

During 2023/24, a single Shareholder/Director receives a Dividend of £60,000 and a Salary of £12,570. Note the Salary is the same as Personal Allowance and the uses all the Personal Allowance.

Salary	£12,570	A
Dividend	£60,000	B
Total Income	£72,570	C	(A+B)
Personal Allowance	£12,570	D
Taxable Dividend	£60,000	E	(C-D)
Dividend Taxed in the Basic Rate Band	£37,700	F	(£50,270 - £12,570)
Dividend Allowance	£1,000
Dividend taxed at the Basic Rate	£36,700	8.75%	= £3,211.25
Dividend taxed at the Higher Rate	£22,300	33.75%	= £7,526.25
Total Tax on Dividends			£10,737.50

In the above example, all the Taxable Income is Dividend, because the Salary is the same as the Personal Allowance.

Links

GOV UK Tax Banks and Rates