Taxation of dividend income

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Taxation of dividend income
  • Introduction
  • When is a dividend taxable?
  • UK dividends and overseas dividends taxable on the arising basis
  • UK dividends received by non-residents
  • Interaction with temporary non-residence rules
  • Overseas dividends taxed on the remittance basis

Introduction

A 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.

For more on dividends from overseas resident companies, see the Foreign dividends guidance note.

The dividend tax regime fundamentally changed from 6 April 2016:

  • the dividend tax credit was abolished, meaning the amount paid is the amount that is taxable; no grossing-up is required
  • a dividend nil rate band of £5,000 per tax year was introduced, which applies irrespective of the marginal rate of the individual (reduced to £2,000 from 2018/19 onwards)
  • the rates of tax on dividend income are: dividend ordinary rate of 7.5%, dividend upper rate of 32.5%, dividend additional rate of 38.1%. With the abolition of the dividend tax credit, this means an increase in the effective rate of tax within these bandings

ITA 2007, ss 8, 13A

However, the position is slightly different for non-residents in receipt of UK cash dividends, see below.

Note that the Scottish income tax rates only apply to the non-savings non-dividend income (commonly referred to in practice as non-savings income) of Scottish taxpayers. As far as the dividend income of Scottish taxpayers is concerned, it is the UK tax bands and rates that apply. For the definition of Scottish taxpayer, see the Proforma income tax calculation guidance note.

When is a dividend taxable?

Whether a dividend is taxable in the UK depends on the circumstances of the individual and whether the dividend is paid by a UK

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