The short version: The dividend allowance is how much you can earn from dividends each year before paying any tax on them. It’s a tax free chunk that applies before dividend tax kicks in.
What’s a dividend?
A dividend is a payment made to shareholders from a company’s profits. If you own shares in a limited company (including your own), you might receive dividends. They’re popular because the tax rates are lower than on salary.
How does the allowance work?
You can earn up to the allowance amount in dividends without paying any dividend tax. Only the amount above this is taxed. The allowance has changed over the years, so check gov.uk for the current figure.
What if I earn more than the allowance?
Anything above the allowance gets taxed at dividend tax rates, which depend on your overall income. Basic rate taxpayers pay less than higher rate taxpayers. The rates are lower than Income Tax rates, which is why dividends are considered tax efficient.
Do I need to declare dividends?
If your dividends are under the allowance and you have no other reason to file, you might not need to do anything. But if you’re above the allowance or have other untaxed income, you’ll need to report them on a Self Assessment.
Not sure how your dividends affect your tax? Let’s have a look at your situation.
