Share Dividends Tax Rates 2020 - Shares Taxes Explained
(06/04/2020 to 05/04/2021)
Tax Credit Withdrawn
When you receive a share dividend you used to have the dividend paid to you with a tax credit. This was to allow for when a company makes profits it pays corporation tax. The profits after corporation tax has been paid are either retained in the company as shareholder reserves or paid out to the owners i.e. the shareholders as a dividend.
Dividends are therefore a share of company profits AFTER TAX (corporation tax).
As a personal income tax payer, your dividend has therefore already had 'corporation tax' paid i.e. you have received a share of net profits but given the withdrawal of the tax credit, a system is now in place where you have a Tax Free Dividend Allowance and any dividends in excess of that are taxable.
For 2020 Tax Year
Tax Free Dividend Allowance £2000
For dividend income received above this, it is charged to tax at a rate where the taxable income falls within the usual income tax bands
Example: Barry receives a dividend cheque from Financial Advice.net shares of £10,000, these are the only shares he owns.
Is additional income tax due?
Barry deducts £2000 tax free dividend allowance. Taxable dividend is now £5,000 and adds this to his gross income.
Don't forget the Capital Gains Tax Liability if you sell shares - Learn more in Capital Gains Tax
Request tax advice today.