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The Taxation of Dividend Income (Four possible rates of Dividend tax (ITA…
The Taxation of Dividend Income
What is a Dividend?
A dividend is the distribution of profits by a company to its shareholder
Dividends always taxed after non-savings and interest (ITA 2007 s.16)
Four possible rates of Dividend tax (ITA 2007 s.8)
7.5%
Used within basic rate band
32.5%
Used within higher rate band
0%
First £5000
38.1%
Used within additional rate band
Dividend Allowance
From 2016/17 the first £5000 received from dividends is taxed at 0% regardless off what level tax payer you are (ITA 2007 s.13A)
The income must still be entered into the tax computation and shown to be taxed at 0%
Must be noted that it depends what level of income the individual has i,e, non-savings and interest, as the percentages mentioned above are determined on how much income the individual is declaring
Allocation of Personal Allowance
Off-set against non-saving income first, then interest and lastly dividends
Stock 'Scrip' Dividends
Some companies will offer new shares instead of cash (ITTOIA 2005 s.409)
The cash equivalent the individual would have received is therefore taxed at the standard dividend rate