Let’s say you receive £60,000 a year in dividends. You’d work out your dividend tax in the following way:
- £12,570 of your earnings are tax-free, as that’s your personal allowance
- Another £1,000 is tax-free, which is your dividend allowance
That leaves £44,430 oftaxable dividends.
- £34,430 of that is taxed at 8.75%, as it takes you up to £50,000 of your income
- The remaining £10,000 is taxed at 33.75%
As with income tax, you’ll pay tax in more than one dividend tax band.
If you earn a wage as well as dividends, your calculation will look slightly different. For example, if you earn £58,000 in wages and £1,000 in dividends, youwon’t pay any tax on your dividends, but you will pay income tax on your wages. If you earn £57,000 in wages and £3,000 in dividends, you’ll be taxed on £2,000 of those dividends, and you’ll have to pay income tax on your wages.
Dividend tax just applies to the dividends you earn. Don’t forget that you also might need to pay tax on other types of income, such as any interest you earn onsavings.
Additionally, if you earn over £100,000 per annum, yourpersonal allowancereduces by £1 for every £2 you earn. This means that if you earn £125,140, you won’t be eligible for a tax-free personal allowance.
