Dividend tax changes from April 2016

  • From April 2016 the UK Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.
  • The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.
  • The allowance is available to anyone who has dividend income.
  • Individuals who receive dividends of more than £5,000 will need to complete self assessment returns from 6 April 2016.
  • You’ll pay tax on any dividends you receive over £5,000 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.

Currently all UK dividends carry a notional 10% tax credit, so for every £1,000 of dividend income received it is assumed that £111 in basic rate tax has already been paid (the total dividend payable is therefore £1,111). Generally, this is why non and basic rate tax payers have no further tax liability to pay on dividends received. This UK tax credit is being removed from April 2016, so in future all UK dividend income will be treated as gross income.

Individuals who receive dividend income will have a tax-free dividend allowance of £5,000 per tax year. If dividend income takes an individual from one tax band into the next, they may be liable to tax on the higher dividend tax rate on that portion of income.

This simpler system will mean that only those with significant dividend income will pay more tax. Investors should seek tax advice to avoid tax rises. As the July 2015 Budget illustrated, tax rules and allowances can always change in future. Any tax benefits also depend on individual circumstances.

Dividend Tax 2015/2016


Net dividend Tax credit Additional tax Dividends after all tax
Non-taxpayer £10,000 £1,110 £- £10,000
Basic rate taxpayer £10,000 £1,110 £- £10,000
Higher rate taxpayer £10,000 £1,110 £2,500 £7,500
Additional rate taxpayer £10,000 £1,110 £3,060 £6,940

The tax rate payable is based on a nominal gross dividend, which is the net dividend plus the notional tax credit. This table illustrates an example where the net dividends total £10,000. Any additional tax will depend on your personal circumstances.

Dividend Tax 2016/2017

Every investor will have an tax-free dividend allowance of £5,000 per tax year. The table below shows the amount of tax payable on dividends in excess of the dividend allowance. This table illustrates an example where the net dividends total above £10,000. The additional tax and dividends after tax figures will vary according to the size of the dividends received.


Net dividend Tax credit Additional tax Dividends after all tax
Non-taxpayer £10,000 £- £- £10,000
Basic rate taxpayer £10,000 £- £375 £9,625
Higher rate taxpayer £10,000 £- £1,625 £8,375
Additional rate taxpayer £10,000 £- £1,905 £8,095

Find out more about the Dividend Allowance on the HMRC website


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