Share Dividends Tax Rates 2020

Published / Last Updated on 05/04/2018

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Tax Credit Withdrawn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

  • Non Tax Payers - no further tax
  • Dividend in Basic Rate Tax Band (20.00 %) - tax due at 7.50 %
  • Dividend in Higher Rate Tax Band (40.00 %) - tax due at 32.50 %
  • Dividend in Additional Rate Tax Band (45.00 %) - tax due at 38.10 %

Example: Barry receives a dividend cheque from Financial 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.

  • If Barry's total income is still in the non tax payer band (Personal Allowance £12500 + Tax Free Dividend Allowance £2000) - there is no tax due
  • If Barry is a Basic rate taxpayer (20.00 %), tax is due at 7.50 %  e.g.  £5,000 X 7.50 %
  • If Barry is a Higher rate taxpayer  (40.00 %), tax is due at 32.50 %  e.g.  £5,000 X 32.50 %
  • If Barry is an Additional rate taxpayer (45.00 %), tax is due at 38.10 %  e.g.  £5,000 X 38.10 %

Don't forget the Capital Gains Tax Liability if you sell shares - Learn more in Capital Gains Tax

Request tax advice today. 

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