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Dividend nil-rate

B2B Business Advisors Limited can help taxpayers in the Milton Keynes area with queries you have regarding dividends – here is an overview of the new Dividend Allowance scheme...

A person does not have to pay tax on the first £2,000 of dividend income, regardless of the level of non-dividend income. Tax is charged on dividends received over £2,000 at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band.

The Dividend Allowance does not reduce total income for tax purposes, and dividends within the allowance still count towards the appropriate basic or higher rate bands. They may therefore affect the rate of tax payable on dividends received in excess of the £2,000 allowance.

Example 1

This is a quite straightforward example, based on 2018-19 tax rates and allowances, showing the taxable amounts after allocating the relevant allowances to the two types of income.

  Non-Dividend Income
£
Dividend Income
£
  18,000 22,000

Dividend Allowance

- 2,000
Personal Allowance 11,000 -
Taxable at basic rate 7,000 (20%)

20,000 (7.5%)

Example 2

This example is more complicated, in that it splits the dividend allowance into two - £1,500 to use up the balance of the basic rate band and £500 to 'eat into' the higher rate band.

  Non-Dividend Income
£
Dividend Income
£
  44,850 9,000
Personal Allowance 11,850 -
Dividend Allowance to basic rate limit - 1,500
Dividend Allowance higher rate band - 500
Taxable at basic rate 33,000 (20%) -
Taxable at higher rate - 7,000 (32.5%)

B2B Business Advisors Limited can advise businesses in the Milton Keynes area on a range of tax issues relating to dividends. Please contact us for more information.

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Chartered Tax Adviser

Registered in England, Company Registration number – 7906656. Registered Office – 58b High Street, Stony Stratford, Milton Keynes, MK11 1AQ. Registered with the Chartered Institute of Taxation as a firm of Chartered Tax Advisers. Registered to carry out audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.