Dividend tax definition

View the related Tax Guidance about Dividend tax

Cash dividends

IntroductionA dividend is a distribution of profit by a company to its shareholders.A dividend is not only a payment in cash. It can be the issue of new shares in exchange for forfeiting the right to a cash payment (a stock dividend). For more detail, see the Non-cash dividends guidance note.This guidance note deals with cash dividends from UK resident companies. For more on dividends from non-UK resident companies, see the Foreign dividends guidance note.The taxation of dividends is discussed in the Taxation of dividend income guidance note.Cash dividends from UK resident companiesCash dividends paid by UK companies on or after 6 April 2016 have no dividend tax credit attached, meaning the amount received is the amount which is taxable. The company must give each shareholder a dividend voucher showing the payment date, the company’s name, the shareholder’s name(s) and the amount paid. It will also usually show the number of shares held by the shareholder and the dividend rate. The amount reported in box 4 on page TR3 of

Dividend waivers

In certain circumstances shareholders may wish to pay dividends other than in proportion to their shareholdings. This aim is typically achieved by one or more shareholders not taking a dividend when it is declared. To effect this, the relevant shareholders must waive their right to dividends from the company. For a final dividend this must be done prior to the dividend being declared / approved as this creates an entitlement to the dividend or for an interim dividend it should be waived before it is paid / credited to the shareholder.Care must be taken when waiving dividends. HMRC may attack this where there is a loss of tax as a result.In order to minimise the risk of HMRC scrutiny when effecting a dividend waiver, the following measures should be taken:•the waiver must be effected by a deed•the deed must be executed before the dividend is declared or paid•the waiver must be have an arm’s length commercialityThe first two points relate to ensuring that the dividend waiver is

Non-cash dividends

IntroductionA dividend is not only a payment in cash. It can be the issue of new shares in exchange for forfeiting the right to a cash payment (a stock dividend). For more on payments in cash, see the Cash dividends guidance note.The tax treatment of non-cash dividends can be easily overlooked by taxpayers. It is good practice to include a note on this in the initial tax return information request letter or tax return information prompt sheet / checklist.There are two main types of non-cash dividends: stock dividends and dividends / distributions in specie.Stock dividends from UK resident companiesIn order to maintain cash balances, sometimes a company will offer the shareholder new shares in the company instead of a cash dividend. These shares, received in lieu of cash, are known as ‘stock dividends’ or ‘scrip dividends’.Calculating the cash equivalentIf an individual accepts new shares in place of the cash dividend, the individual is taxed on the cash equivalent of the shares received. The cash equivalent is usually the cash they would

Taxation of dividend income

IntroductionA dividend is a distribution of profit by a company to its shareholders.A dividend is not only a payment in cash. It can be the issue of new shares in exchange for forfeiting the right to a cash payment (a stock dividend). For more detail, see the Cash dividends and Non-cash dividends guidance notes.Non-savings non-dividend income (commonly referred to in practice as non-savings income) is taxed first, and then savings income, with dividend income taxed last. There are four possible rates of tax applying to dividend income from 2026/27: the dividend nil rate of 0%, the dividend ordinary rate of 10.75%, the dividend upper rate of 35.75% or the dividend additional rate of 39.35%. From 2022/23 to 2025/26, the dividend ordinary rate was 8.75% and the dividend upper rate was 33.75%, with the dividend nil rate and the dividend additional rate unchanged at 0% and 39.35% respectively. Note that the tax rates for dividend income (and savings income) have not been devolved. This means that Scottish and Welsh income tax rates only apply

Dividends ― planning issues

Tax liabilities for dividendsThere is generally a tax advantage to extracting profits by way of dividends, often once a salary had been taken to utilise the personal allowance, ensure entitlement to certain state benefits and in certain cases to ensure payment of at least the national minimum wage, see the Salary v dividend guidance note.Dividend planning strategies include consideration of cashflow issues and administrative ease, as well as tax savings. Clients whose businesses were previously run in unincorporated forms can find it difficult to adhere to remuneration strategies and need to exercise particular care in this area.A newly incorporated business needs to be aware of the legal requirements for paying dividends, as set out in the Dividends ― payment procedures and practical issues guidance note. Furthermore, it is important to ensure that shareholders are aware of any personal tax liabilities relating to dividends.Higher and additional rate on dividend paymentsOne aspect of dividend planning is the effect of dividends being forced up into the higher tax rates. This is one of the reasons

Income tax for the personal representatives during the administration period

This guidance note explains how estates in the course of administration are taxed on their income. The note uses the term ‘personal representatives’ (PRs) which encompasses executors appointed under a Will and other PRs appointed under an intestacy or otherwise. This guidance note explains what types of income arise to PRs, and how it is quantified and taxed during the transitional administration period.Liability of the personal representatives (income tax)After a person’s death, the property of the deceased is vested in the PRs to enable them to manage and distribute the estate in accordance with the Will or the terms of intestacy. See the Personal representatives guidance note.The PRs act as a single body and represent the estate as a separate legal entity. During the period of administration, income received by the PRs is assessed on the estate, and the PRs are responsible for paying the tax due.Just like a UK resident individual, a UK resident estate is liable to income tax on

Discretionary trusts ― income tax

IntroductionThis guidance note explains how to calculate the income tax liability on the income of discretionary trusts and any trusts where income may be accumulated. It also covers the general principles of income tax that apply to all trusts and identifies the features specific to discretionary and accumulation trusts.Trustees are together treated as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time). In order to calculate the income tax liability for any trust, you first have to determine what type of trust it is. It is essential when dealing with a trust for the first time to read the trust instrument. As explained in the Taxation of trusts ― introduction guidance note, the income tax treatment will fall into one of the two categories:•standard rate tax (bare trusts and all interests in possession)•trust rate tax (discretionary and accumulation trusts)The nature of an interest in possession and the income tax treatment

Interest in possession trusts ― income tax

IntroductionThis guidance note explains how to calculate the income tax liability on the income of an interest in possession trust. It also covers the general principles of income tax that apply to all trusts and identifies the features specific to an interest in possession trust.Trustees together are treated as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time). In order to calculate the income tax liability for any trust, you first have to determine what type of trust it is. It is essential, when dealing with a trust for the first time, to read the trust instrument. As explained in the Taxation of trusts ― introduction guidance note, the income tax treatment will fall into one of two categories:•standard rate tax (bare trusts and all interests in possession), and•trust rate tax (discretionary and accumulation trusts)The nature of a discretionary interest and the income tax treatment is detailed in the

Non-qualifying distributions

Historically, non-qualifying distributions were distributions that did not qualify for a dividend tax credit. This was usually because they could be structured to be paid out of capital rather than out of profits.Non-qualifying distributions have always been relatively rare in practice, as the legislation operates as low-level anti-avoidance to deter this type of distribution. If the taxpayer has received a non-qualifying distribution, it should have been identified as such on the dividend voucher received from the company.Although the dividend tax credit was abolished with effect from 6 April 2016, and the term ‘non-qualifying distributions’ was repealed, this is still a helpful conceptual term to use when thinking about certain distributions that:•fall to be treated as dividend income rather than as capital, and•require income tax relief where they are later linked to a ‘qualifying’ distributionTherefore, the guidance below still uses the term ‘non-qualifying distributions’ as a catch-all term for these types of distributions. However, the post-April 2016 legislation refers to these types of distributions as ‘CD distributions’, meaning that these

Income treatment for purchase of own shares

This guidance note sets out the tax effect of the ‘income treatment’ for a relevant shareholder on the purchase of own shares by a company. See the Purchase of own shares ― overview guidance note for an overview of this area.The tax treatment for the shareholders in a company on a purchase of own shares will fall into one of two categories ― either the ‘income treatment’ or the ‘capital treatment’.For shareholders who are UK resident individuals, the income treatment will apply by default to the repurchase. However, where the buyback is carried out by an unquoted trading company and specific conditions are met, the seller is treated as receiving a capital payment instead (ie the capital treatment applies). See the Capital treatment for purchase of own shares guidance note for further details on when the capital treatment can apply.Some sellers may prefer income (otherwise referred to as distribution) treatment rather than capital gains. For example, the seller’s marginal dividend tax rate for 2026/27 may be only 10.75% whereas