Taxation of Dividends

In this article we look at the intricacies of tax computation on dividend income for individuals.

Tax rates

We are aware that dividends are taxed at special rates which are lower than non-saving rates. But, if the foreign income is taxed on the remittance basis, they are taxed at basic, higher or additional rates.1

Resident individuals

Stock dividends from non-UK companies are not taxable. 2

The charge to tax on foreign dividends is on the full amount of the dividends arising in the tax year – ITTOIA05/403. This is different from the paid basis that applies to dividends and other distributions from other UK companies. 3

Dividends from venture capital trusts are exempt from tax, up to shares worth £200k.4

Non-resident individuals

Where a non-resident receives dividend from a UK company, he is treated as if he has already paid tax @ dividend ordinary rate. But this credit is not repayable. 5

Withholding tax

No withholding tax in the UK. But payments to non-residents, UK (under many DTAAs) is entitled to impose 15% withholding tax.

High Income benefit charge (HICBC) and Dividend allowance

Dividend allowance (currently 2024-25 at £500) may reduce tax liability but is counted as income for HICBC calculation.

Dividend allowance, personal saving allowance and starting rate for savings income do not apply to foreign income remitted to the UK.7

Bonus

  1. Expenditure: professional fees – fees for advice about markets or management of a portfolio, not allowable.6

Notes

  1. RDRM31320
  2. ITTOIA05 Sec 402 (4) and SAIM5210
  3. SAIM5210
  4. VCM51200
  5. ITTOIA 2005 Sec 399.
  6. CG15280
  7. ITA 2007, s13 and s18