Dividend income received by individuals is taxable. No income tax is payable on the first £2,000 of dividend income received by individuals as this is covered by the dividend allowance (also known as the dividend nil rate band). The income tax due on dividend income in excess of this amount depends on the level of the individual’s other income for the tax year. Basic rate taxpayers pay income tax at 7.5% on dividend income, higher rate taxpayers pay income tax at 32.5% on dividend income and additional rate taxpayers pay income tax at 38.1% on dividend income. If the individual completes a self-assessment tax return each year, the total dividends received in the tax year must be included even if this is covered by the dividend allowance. Where the individual has income tax to pay on the dividend income (ie the dividends received exceed the dividend allowance) this is calculated via the self-assessment tax return.
Dividends are not tax deductible to the company paying the dividend, ie the company pays corporation tax on its profits without deducting the amount of the dividends paid to shareholders.
Dividend income received by companies is not taxable.