Dividend Tax Rates
The specific rates at which dividends are taxed in excess of the Dividend Allowance: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. These rates are lower than the equivalent income tax rates on employment income, reflecting a recognition that dividends are paid out of profits already subject to Corporation Tax. Company directors and shareholders often need to balance salary and dividends to optimise their overall tax position.
Related Terms
Dividend Tax
Tax payable on dividend income received from shares in UK and overseas companies, above the Dividend Allowance.
Dividend Allowance
The amount of dividend income you can receive each tax year completely free of tax, currently set at £500.
Basic Rate
The standard income tax rate of 20% applied to taxable income between the Personal Allowance and the higher-rate threshold, currently £12,571 to £50,270 in England, Wales, and Northern Ireland.
Higher Rate
The income tax rate of 40% applied to taxable income above £50,270 up to £125,140 in England, Wales, and Northern Ireland.
Additional Rate
The highest income tax rate in England, Wales, and Northern Ireland, charged at 45% on taxable income above £125,140.
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