What is a Dividend?
- Dividends are given to the company’s shareholders.
- You have a tax-free dividend allowance (£2,000 in 2022/23).
- Dividends are taxed according to your tax band.
A dividend is a portion of a company's profits that’s given to its shareholders (people who own a share in the company). Each shareholder receives a dividend in proportion to the share they own (e.g., 10%,50%, 80%, etc.)
When you get a dividend in the UK you may need to pay tax. In the 2022/23 tax year you don’t pay any dividend tax on the first £2,000 you receive. In the 2023/24 tax year that drops to £1,000. This is your tax-free allowance.
Everything you receive above this will be taxed. The amount you’re taxed depends on the tax band you’re in. The basic dividend tax rate is 8.75%, the higher dividend tax rate (earnings between £50,271 to£125,140) is 33.75%, and the additional rate (earnings above over £125,140) is 39.35%.
E.g., if you earn a £60,000 salary, your dividends will be taxed starting from the higher rate at 33.75% (after deducting your tax-free allowance).
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