Personal Tax

Taxation of dividend income

Produced by Tolley
  • 09 Nov 2021 11:31

The following Personal Tax guidance note Produced 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
  • Dividend income paid on or after 6 April 2016
  • Dividend income paid before 6 April 2016
  • UK dividends received by non-residents
  • Interaction with temporary non-residence rules
  • Meaning of key terms
  • Reporting
  • More...

Taxation of dividend income

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.

Dividend income is taxed at dividend income tax rates, which increase by 1.25% with effect from 6 April 2022. Note that the tax treatment of dividend income in the hands of UK residents is different to the tax treatment of dividend income of non-residents. This is also covered below.

Note that the Scottish and Welsh income tax rates and bands only apply to the non-savings non-dividend income (commonly referred to in practice as non-savings income) of Scottish and Welsh taxpayers. As far as the dividend income of Scottish or Welsh taxpayers is concerned, it is the UK tax bands and rates that apply. For the definition of a Scottish taxpayer and a Welsh 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 resident company or an overseas resident company.

An individual who is resident and domiciled or deemed domiciled in the UK is taxable on their worldwide income (and gains) in the tax year in which these are received and should declare these on their tax return. See the Residence ― overview and Domicile guidance notes for detail on these terms. The taxation of income and gains in the year of receipt is commonly known as the arising basis of assessment.

Individuals who are not domiciled or deemed domiciled in the UK are eligible to access the remittance basis of assessment. The effect of the remittance basis is that the

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