What Are the Tax Implications for Receiving Dividends on a £39,570 Salary?

Q: Dividends: I am set to earn £39,570 for my basic salary in the current tax year. On top of that, I’m due to receive for the first time some dividend payments from shares I own in a company – around £5,000. What are the tax implications for me this year?

A: The first thing to mention here is that you have a Dividend Allowance each year. Unfortunately for you and other dividend beneficiaries that has decreased for the 2024/25 tax year. It was £1,000 but it is now just £500. What it means is that you won’t have to pay tax on the first £500 of the £5,000 you’re set to earn from dividends.

For the remainder of that sum – the £4,500 of dividends – the amount of tax you pay comes down to the Income Tax Band that you fall in. Helpfully, you’ve mentioned your basic salary. So, we can see you’re in the basic rate (20%) Income Tax Band category. For the dividends, that means you must pay a rate of 8.75% on your £4,500 sum. Hence, you will pay £393.75 in tax on your dividends.

For anyone else reading this with dividends, it’s worth noting that you would need to pay 33.75% on your dividends if your income puts you in the Higher Rate Income Tax Band or 39.35% if you’re in the Additional Rate category.

If you only earn up to £500 in Dividends (this tax year’s allowance), and you don’t already file a Self-Assessment Tax Return there’s no requirement to inform HMRC or take any other action.

Those who earn between £500 or £10,000 from dividends and who don’t already normally fill out a Self-Assessment Tax Return need to tell HMRC about it. You can call their helpline, and there are two options for payment of tax. Firstly, via filling out a Self-Assessment Tax Return. Or, by having HMRC adjust your tax code to automatically take it from your salary or pension. For Dividends over £10,000 you must complete a tax return.

For more help on understanding Dividends, please contact our team.

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in Monthly Tax Q&A Tags: dividends basic salaryself-assessment tax return