How are dividends taxed in the UK?
Answered 11 March 2026
I now have comprehensive sources to provide a thorough answer. Here is a structured overview of how dividends are taxed in the UK:
How Are Dividends Taxed in the UK?
What the law says
1. The charge to tax
Income tax is charged on dividends and other distributions of a UK resident company, and such dividends and distributions are treated as income for income tax purposes. Dividends from non-UK resident companies are taxable under ITTOIA 2005, Part 4, Chapter 4.
2. Definition of "dividend income"
For the purposes of the Income Tax Acts, "dividend income" includes income chargeable under:
- Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc. from UK resident companies);
- Chapter 4 (dividends from non-UK resident companies);
- Chapter 5 (stock dividends from UK resident companies);
- Chapter 6 (release of loan to participator in close company); or
- Relevant foreign distributions chargeable under Chapter 8 of Part 5 of ITTOIA 2005.
3. Rates for individuals (ITA 2007, s.13)
Dividend income for individuals is charged at special rates — not the standard income tax rates — depending on which income tax band the dividend falls into:
- Dividend ordinary rate — applies where the income would otherwise be charged at the basic rate;
- Dividend upper rate — applies where the income would otherwise be charged at the higher rate;
- Dividend additional rate — applies where the income would otherwise be charged at the additional rate.
Importantly, dividend income is not affected by the Scottish or Welsh rates of income tax — a Scottish taxpayer's dividend income is assessed as if they were not a Scottish taxpayer.
4. The current rates (from 2022-23 onwards)
The Finance Act 2022 increased the dividend rates by 1.25 percentage points for 2022-23 and subsequent years:
- Dividend ordinary rate: 8.75%
- Dividend upper rate: 33.75%
- Dividend additional rate: 39.35%
5. The Dividend Allowance (dividend nil rate)
Under ITA 2007, s.13A, a dividend nil rate (0%) applies to the first slice of an individual's dividend income. The allowance has been progressively reduced:
- From April 2016: £5,000
- 2023-24: reduced to £1,000
- 2024-25 onwards: £500
The nil rate applies across the dividend ordinary, upper, and additional rate bands in order.
6. Persons other than individuals
For persons other than individuals (e.g. non-individual entities), dividend income that would otherwise be charged at the basic rate is charged at the dividend ordinary rate (ITA 2007, s.14).
7. Discretionary trusts
For UK resident discretionary trusts, dividends are taxed at the dividend trust rate. From 2022-23 this is 39.35%. All other trust income is taxed at the trust rate (40%).
8. Financial traders
Where dividends are received by a financial trader, ITTOIA 2005, s.366(1) gives charging priority to the trade profits rules, so such dividends are taxed as trading receipts rather than as dividend income.
HMRC guidance / practice
- From April 2016, the old Dividend Tax Credit was abolished and replaced by the Dividend Allowance. Everyone can receive up to the allowance in dividend income (on top of dividends in an ISA) without paying tax. Dividend tax is unaffected by the Scottish or Welsh Rates of Income Tax and applies at the same rate for all UK taxpayers.
- HMRC adjusts PAYE tax codes for those with dividend income above the allowance. Where UK dividends are equal to or less than the allowance, no P2 coding notice is generated; a P2 is only issued where dividends exceed the allowance.
- Foreign dividend income should be included in the PAYE end-of-year reconciliation. Where foreign dividends exceed the Dividend Allowance, the individual must complete a foreign page for their Self Assessment return.
- Savings and dividend income is taxed at the same rates for all taxpayers regardless of residency status.
Summary table
| Taxpayer type | Band | Rate (2024-25) |
|---|---|---|
| Individual | Dividend allowance (first £500) | 0% (nil rate) |
| Individual | Basic rate band | 8.75% |
| Individual | Higher rate band | 33.75% |
| Individual | Additional rate band | 39.35% |
| Discretionary trust | All dividend income | 39.35% |
Citation sources
Dividends from non-UK resident companies are taxable under ITTOIA05/PART4/CHAPTER4. Before Tax Law Rewrite, the charge on foreign dividends was under Case IV or Case V of Schedule D. The rewritten legislation largely integrates the charge on foreign dividends with the taxation of the equivalent income from a UK source. But there are some differences. The UK charge includes other distributions, as well as dividends. These may include amounts of a capital nature and can treat interest as a distrib
Where foreign dividend income is received, this should be included in the PAYE end of year reconciliation. Include the amount of gross foreign dividend in IABD, see PAYE130055. Basic rate individuals are treated differently to higher rate and additional rate individuals. In higher rate and additional rate cases, the PAYE Service will calculate the ‘other income’ (not earned) coding deduction. If the only foreign income received are dividends and these are greater than the current dividend allowa
ITTOIA05/S366 (1) gives charging priority to ITTOIA05/PART2/CHAPTER2 (income taxed as trade profits) where it is also savings and investment income falling within ITTOIA05/PART4, including dividends and other distributions from UK companies within CHAPTER3. These are accordingly taxed as trading receipts. This approach replicates that before tax law rewrite, although it was expressed differently. Under ICTA88/S20 (1), the charge to tax on all dividends and other distributions was subject to ICTA
PART 1 Income tax, corporation tax and capital gains tax Income tax charge, rates etc Increase in rates of tax on dividend income 4 1 In section 8 of ITA 2007 (which provides, among other things, for the dividend ordinary rate, dividend upper rate and dividend additional rate)— a in subsection (1) (the dividend ordinary rate), for “7.5%” substitute “8.75%” , b in subsection (2) (the dividend upper rate), for “32.5%” substitute “33.75%” , and c in subsection (3) (the dividend additional rate), fo
Part 2 Basic provisions Chapter 2 Rates at which income tax is charged Income charged at particular rates Meaning of “dividend income” 19 1 This section applies for the purposes of the Income Tax Acts. 2 “Dividend income” is income which is— a chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc from UK resident companies), b chargeable under Chapter 4 of that Part (dividends from non-UK resident companies), c chargeable under Chapter 5 of that Part (stock dividends from UK residen
PART 1 Income tax Rate structure Rates of tax on dividend income, and abolition of dividend tax credits etc 5 1 ITA 2007 is amended in accordance with subsections (2) to (8). 2 In section 6(3)(b) (other rates: dividends), before “dividend ordinary rate,” insert “ dividend nil rate, ” . 3 In section 8 (dividend ordinary, upper and additional rates)— a in the heading, after “The” insert “ dividend nil rate, ” , b before subsection (1) insert— A1 The dividend nil rate is 0%. , c in subsection (1) (
Part 2 Basic provisions Chapter 2 Rates at which income tax is charged Income charged at particular rates Income charged at the dividend ordinary rate: other persons 14 1 Income tax is charged at the dividend ordinary rate on the income of persons other than individuals which— a is dividend income, b would otherwise be charged at the basic rate, and c is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis). 2
From April 2016, the Dividend Tax Credit will be abolished and a new £5,000 Tax Free Allowance for Dividend income will be introduced. The new rates of tax on Dividend income above the allowance will be: 7.5% for dividends taxed in the Basic Rate 32.5% for dividends taxed in the Higher Rate 38.1% for dividends taxed in the Additional Rate An allowance will be introduced so that everyone can receive up to £5,000 of Dividend income, on top of any dividends received on shares held in an ISA. If an
Part 2 Basic provisions Chapter 2 Rates at which income tax is charged Income charged at particular rates Income charged at the dividend ordinary , dividend upper and dividend additional rates: individuals 13 1 Income tax is charged at the dividend ordinary rate on an individual's income which— a is dividend income, b would otherwise be charged at the ... basic rate, ... or the Welsh basic rate, and c is not relevant foreign income charged in accordance with section 832 of ITTOIA 2005 (relevant
Income tax Dividend nil rate 7 1 In section 13A(2) of the Income Tax Act 2007 (income charged at the dividend nil rate), for “£2000”, in each place, substitute “£1,000” . 2 The amendments made by subsection (1) have effect for the tax year 2023-24. 3 In section 13A(2) of that Act (as amended by subsection (1) ), for “£1,000”, in each place, substitute “£500” . 4 The amendments made by subsection (3) have effect for the tax year 2024-25 and subsequent tax years.
Income of UK resident discretionary trusts is taxed at the rate applicable to trusts on all income except dividends, which are taxed at the dividend trust rate. Credit is given for income tax and tax credit, and the trustees pay the additional amount. From 6 April 2004 dividends (including foreign dividends) are taxed at the dividend trust rate of 32.5%; all other income is taxed at 40%. From 6 April 1999 to 5 April 2004 dividends (including foreign dividends) were taxed at the dividend trust ra