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Dividend nil-rate

A person does not have to pay tax on the first £2,000 of dividend income, regardless of the level of non-dividend income. Tax is charged on dividends received over £2,000 at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

The Dividend Allowance does not reduce total income for tax purposes, and dividends within the allowance still count towards the appropriate basic or higher rate bands. They may therefore affect the rate of tax payable on dividends received in excess of the £2,000 allowance.

Example 1

This is a quite straightforward example, based on 2018-19 tax rates and allowances, showing the taxable amounts after allocating the relevant allowances to the two types of income.

  Non-Dividend Income
£
Dividend Income
£

 

18,000

22,000

Dividend Allowance

-

2,000

Personal Allowance

11,000

-

Taxable at basic rate

7,000 (20%)

20,000 (7.5%)

Example 2

This example is more complicated, in that it splits the dividend allowance into two - £1,500 to use up the balance of the basic rate band and £500 to 'eat into' the higher rate band.

  Non-Dividend Income
£
Dividend Income
£

 

44,850

9,000

Personal Allowance

11,850

-

Dividend Allowance to basic rate limit

-

1,500

Dividend Allowance higher rate band

-

500

Taxable at basic rate

33,000 (20%)

-

Taxable at higher rate

-

7,000 (32.5%)