What are dividends?
Dividends are payments made to company shareholders. If you are shareholder you would pay tax:
- if you were to sell your shares
- if the company paid you dividends after its paid corporation tax.
What is the dividend tax rate?
Tax paid on dividends is less than the tax paid on other income such as salaries. The dividend allowance for 2019/20 is £2,000, anything over this will be taxed.
Rates vary depending on your income tax band. Dividends are paid at the below rates:
Basic rate – 7.5%
Higher rate – 32.5%
Additional rate – 38.1%
So, if you are a higher rate taxpayer and received £22,000 of dividends only £2,000 of those dividends are tax free now leaving £20,000 of those dividends to be taxed at 32.5% meaning £6,500 due on 31 January 2020, and possibly payments on account of your 2020/21 liability.