Dividend Allowance 2024/25 – All You Need to Know

Earning dividends? That’s great, but did you know you might have to pay more taxes this year

According to HM Revenue and Customs, the 2024/25 dividend allowance has been cut to GBP 500, meaning more of your income is now taxable.[1] Whether you earn dividends from a business or investments, understanding new tax rules and strategies can help you keep more of your money.

This guide covers everything you need to know about dividend tax in 2024/25, including how the allowance works, the latest tax rates, how to pay tax on dividends, and ways to reduce your tax burden.

The dividend allowance is the amount of dividend income that UK taxpayers can receive before paying dividend tax.

It applies to individuals, not businesses, meaning each taxpayer receives a single allowance regardless of how many companies they hold shares in.

The UK government sets this allowance to encourage investment in UK businesses, prevent double taxation since dividends are paid from company profits that have already been taxed, and simplify tax reporting for small-scale investors.

This allowance applies whether dividends come from a personal investment portfolio, a business you own, or a combination of both.

Yes, non-UK residents who receive dividends from UK companies are subject to UK dividend tax rates. However, tax treaties with their country of residence may allow them to claim relief.

For the 2024/2025 tax year (6 April 2024 until 5 April 2025), the dividend allowance has been reduced to GBP 500, down from GBP 1,000 in 2023/24.

This means that only the first GBP 500 of dividend income is tax-free. Any amount above this is subject to dividend tax rates based on your income tax band, which increases the tax burden for smaller dividend incomes.

Whether you're a business owner or an investor, this change increases your tax burden and may require adjustments to how you receive income.

• If you receive dividends over GBP 500, you may now need to file a Self Assessment tax return, even if your total income was previously below the threshold. [2]
• If you're a small investor, you’ll now pay tax on a lower amount of dividend income, reducing your returns.
• If you’re a company director, you’ll need to reassess how you balance salary and dividends, as more of your income will be taxable.
• If you invest in dividend-paying stocks, you may need to adjust your portfolio to minimise tax.

The dividend tax rates for 2024/25 remain unchanged from the previous year (2023/24).

The tax you pay on dividends above the dividend allowance is taxed at different rates, depending on your tax band. The dividend tax rates for England, Wales, and Northern Ireland are as follows.

The way you pay your taxes depends on how much you earn from dividends and other income sources.

If your total dividend income (before tax) is GBP 10,000 or less, you don’t necessarily need to file a Self Assessment tax return. Instead, you can inform HMRC in one of two ways:

• Updating your tax code – Contact HMRC to adjust your tax code, so the tax is deducted automatically from your wages or pension.
• Self Assessment tax return – If you’re already required to file a Self Assessment, include your dividend income in your return.

If your dividends are more than GBP 10,000, you must file a Self Assessment tax return.

Steps to Pay Dividend Tax via Self Assessment:

1. Register for Self Assessment - If you haven’t filed before, register by 5 October following the end of the tax year in which you received dividends.[3]
2. Submit your tax return online – If filing online, the deadline is 31 January after the tax year ends.
3. Pay your tax bill – Payment deadlines are:
   31 January – Pay any tax owed for the previous tax year (balancing payment).
   31 July – If required, HMRC may ask you to make an additional payment toward next year’s tax bill.

Here are examples of how to calculate your tax on dividends.[4]

You receive GBP 13,000 in dividends and have no other income.

• The first GBP 500 of dividend income is covered by the dividend allowance.
• The remaining GBP 12,500 is within your personal allowance (GBP 12,570)
• So you can keep all of your dividends.

You receive GBP 6,000 in dividends and also earn a salary of GBP 30,000.

Step 1: Calculate Total Taxable Income

• GBP 30,000 (salary) + GBP 6,000 (dividends) = GBP 36,000
• Since your salary already uses up the entire Personal Allowance, your dividends do not benefit from it.

Step 2: Apply the Dividend Allowance

• The first GBP 500 of your dividends is tax-free under the Dividend Allowance.
• The remaining GBP 5,500 of dividends is taxable.

Step 3: Apply Dividend Tax Rates

Since you fall within the basic rate band, your dividend tax rate is 8.75%.

• GBP 5,500 × 8.75% = GBP 481.25

With the dividend allowance now cut in half, finding tax-efficient ways to manage dividend income is more important than ever. Here are some strategies to minimise the amount of tax you pay on dividends

Dividends earned inside an Individual Savings Account (ISA) are completely tax-free. This makes ISAs one of the easiest ways to avoid paying tax on dividends. The ISA allowance for 2024/25 is GBP 20,000, so you can invest up to this amount in dividend-paying stocks without paying tax on the income.

Each individual has a separate GBP 500 dividend allowance. If your spouse or civil partner pays less tax, you can transfer shares to them to use their free personal allowance and lower your overall tax bill.

If you run a business, you can pay yourself a mix of salary and dividends to reduce your tax:

• Keeping salary below the National Insurance threshold ensures eligibility for state pension benefits.
• Keeping total income below GBP 50,270 means you pay a lower dividend tax rate.
• Paying dividends instead of a higher salary reduces exposure to National Insurance contributions.

Pension contributions can help lower total taxable income, which can:

• Ensure taxpayers stay in a lower tax bracket, reducing the rate at which dividends are taxed.
• Qualify for tax relief, making them a tax-efficient way to save for retirement while minimising tax liability.

If possible, selling shares instead of taking dividends can mean paying less tax:

• The Capital Gains Tax (CGT) allowance for 2024/25 is GBP 3,000.
• CGT rates are 10% for basic-rate taxpayers and 20% for higher-rate taxpayers, which may be lower than dividend tax rates (up to 39.35%).

If you get dividends from foreign companies, you may still have to pay tax in the UK.

The amount you owe depends on whether there is a tax treaty between the UK and the country where the dividends come from, as some agreements prevent double taxation. You must also consider any foreign tax already paid, as you may be able to claim Foreign Tax Credit Relief to reduce your UK tax bill.

Foreign dividends are taxed the same way as UK dividends, following UK dividend tax rates. However, if tax has already been deducted in another country, you might be able to offset this against the tax you owe in the UK.

Even if you have paid tax abroad, you must still report foreign dividends in your Self Assessment tax return. The HMRC form includes a section for foreign income, where you need to declare the amount of dividends received, any foreign tax paid, and the country where the dividends were earned.

With the lower dividend allowance, more people will have to pay tax on their dividends. Using ISAs, adjusting income strategies, and understanding foreign dividend tax rules can help reduce tax liability. Since tax situations vary, getting professional advice can help you find the best approach.