The UK dividend tax rates for 2018-19 are very similar to the previous tax year. However, there are a few changes that will allow you to receive more income with less tax to pay. in the video we'll go through specific examples of receiving dividends with various levels of income to show how it's calculated.
Dividend Tax Rates & Allowances
Firstly, let's have a look at the dividend tax rates in 2018:
Basic Rate Dividend Tax: 7.5%
Higher Rate Dividend Tax: 32.5%
Additional Rate Dividend Tax: 38.1%
We'll also need to know the tax allowances in 2018:
Personal Allowance: £11,850
Dividend Allowance: £2,000
Your personal allowance is included here since it can be used on any dividends received if your other income is low enough. For example salary, self-employment and property income will be accounted for first. Once those are added into the calculation, any remaining allowances can be used on your dividend drawings during the year, making them tax-free.
The final step will be to understand when each rate of dividend tax is applied. For that we'll need the tax thresholds during 2018/19.
Personal Tax Thresholds
The tax thresholds in the 2018/19 tax year determine when each rate of dividend tax will apply. This outlines the amount of income you can receive before reaching the next tax rate.
Remember that the personal allowance of £11,850 will be tax-free unless your total income exceeds £100,000 during the tax year. The thresholds are listed below:
Basic Rate: £11,851 to £46,350
Higher Rate: £46,351 to £150,000
Additional Rate: £150,001 +
Now that the rates, allowances, thresholds have been outlined, you can easily calculate the tax payable on any dividends received.
For example if you received £5,000 in dividends during the year and already had £30,000 in salary, the tax will be £225.
It's important to know how much tax will need to be paid on your dividends as it'll be collected each year through a self-assessment tax return. If you know the figures in advance, there won't be any unnecessary surprises.
A final point to keep in mind is regarding Payments on Account requested by HMRC. These are payable when your total tax bill on your self-assessment exceeds £1,000. Half of the total bill is added on top of your liability and is due by 31st January 2020. The other half of the bill is payable by 31st July 2020.
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