Your guide to understanding the tax on dividends in the UK
Updated: Oct 7
To start with, you may be asking What’s the tax on dividends in the UK? Well, the first thing to realize is that there are two different taxes to worry about when it comes to dividends in the UK – income tax and capital gains tax.
This can seem a little confusing at first, but when you understand how each of these taxes works and why they are important, it all makes sense in the end! When you want to know about the tax on dividends in the UK, keep reading this guide to see everything you need to know!
What are dividends?
A dividend is a payment that some companies make out of their profits and earnings to those who own shares in that company. This is usually paid annually, or 6 monthly, although it could be at irregular intervals, according to different policies of the company's board.
Most companies pay out between 10% and 50% of their earnings through dividends each year. The dividend is paid at a set rate per share, which means if you own 100 shares, then you will receive 100 x the dividend declared every year as your dividend payment.
As company shares are traded on a stock market, they can change value throughout the day as people buy and sell them.
What are the dividend tax rate for 2022-23?
UK dividend tax rates depend on your marginal rate of tax for income tax purposes;
Consequently, the dividend tax rates for 2022/23 are as follows:
· Dividend ordinary rate: 8.75%.
· Dividend upper rate: 33.75%.
· Dividend additional rate: 39.35%.
There is also a nil rate band for dividends up to £2,000 per year.
It should also be noted that the government has recently made some amendments in the budget that may affect the higher earner income band, and therefore the dividend additional rate band. Watch this space.
Are all forms of dividend income taxable?
No, dividends from companies outside of the UK are not taxable in the UK. The income you receive from a company based abroad will depend on their own tax rules and regulations.
Are there any special rates for dividends held in an ISAor SIPP?
Have I paid too much dividend tax? Can I reclaim it?
It is possible that you have paid too much tax. This would happen if you were not being charged the correct rate of income or dividend taxes.
Unfortunately, this would be at your expense and HMRC will not provide a refund automatically.
However, as long as you can supply evidence of your circumstances, they may be able to provide a refund by reducing your current bill or giving you a cash settlement via Tax Rebate form R42.
Do foreign companies have to pay UK corporation tax?
Yes, foreign companies will have to pay UK corporation tax, but only if they are incorporated under or become resident under any of the following:
The Companies Act 2006 (unless they are exempt from Corporation Tax by way of certain specific exemptions); and as Part3 of the Taxes Management Act 1970; any provision made by order by HM Treasury for this purpose.