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Calculate how dividends over £5,000 will be taxed.

As the tax year 2016/17 closes we will see the calculations and the impact of the dividend allowance.

Dividends received over £5,000 will be taxed 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.

In the example below the following limits are assumed:

Personal allowance             £11,000

Basic rate limit                      £32,000

Higher rate threshold          £43,000

Example

Mr C has salary income of £40,000 and dividend income of £9,000 from shares outside an ISA.

£

Salary                                                                    40,000

Dividends                                                                9,000

                                                                                49,000

Personal allowance                                          (11,000)

                                                                                38,000

Dividend allowance                                            (5,000)

                                                                                33,000

Salary income taxed at basic rate of 20%       29,000

Income taxed at dividend higher rate 32.5%     4,000

                                                                                33,000

Tax payable £29,000 x 20%                                 5,800

Tax payable £4,000 x 32.5%                                1,300

                                                                                  7,100

You can see more examples at ACCA’s UK technical advice and support pages.

Article from ACCA In Practice