Can dividend be taxed as income for individuals? 27 May 2022 at 12:05AM in Cutting tax 15 replies 571 views

hoc

When dividend is the main or even the only source of income for an individual can it then be treated under income tax rules? I recall reading something like this but can't find anything. I've tried a few of the online calculators and don't see any difference tax regime when salary income is entered as 0 but I'm not certain there aren't some special rules these calculators may be omitting. To avoid any confusion I'm talking about dividends distributed from FTSE 100 companies not "dividends" a director may pay himself from his own company.

molerat

https://www.gov.uk/tax-on-dividends

Dazed_and_C0nfused

Dividends are always taxed under income tax rules.

If the Personal Allowance hasn't been used by other income then that could be used followed by these rate bands

Dividend nil rate

Dividend basic rate 
Dividend higher rate

Dividend additional/upper rate

Grumpy_chap

There is also the dividend allowance which does not incur income tax, £2k I think.

Dazed_and_C0nfused

Grumpy_chap said:

There is also the dividend allowance which does not incur income tax, £2k I think.

That's really the dividend nil rate band, £2,000 taxed at 0% 🙂

Grumpy_chap

Dazed_and_C0nfused said:

Grumpy_chap said:

There is also the dividend allowance which does not incur income tax, £2k I think.

That's really the dividend nil rate band, £2,000 taxed at 0% 🙂

Ok, thanks I missed that was already included in your post

expansion

There is no such rule in the UK. Even when dividends are the only income they won't be assessed against income tax.

Jeremy535897

expansion said:

There is no such rule in the UK. Even when dividends are the only income they won't be assessed against income tax.

This doesn't make sense. The expression "won't be assessed against income tax" has no meaning.

hoc

Obviously the context here is about whether dividend income can be classed as employment income. HMRC itself tends to refer to tax on income from employment simply as "Income Tax". See how it is phrased in the table as an example https://www.gov.uk/income-tax-rates

Anyway it seems there isn't a threshold where dividend income would be taxed as employment income. In the basic rate band there is a significant difference.

Jeremy535897

Dividend income is never taxed as employment income.

prowla

Dividends are taxed separately to normal employment PAYE Income Tax & National Insurance (NI) and have their own rates for the tax bands.

This page gives a table of the rates https://www.theaccountancy.co.uk/limited-company/dividends/paying-tax-on-dividends-in-2022-23-56115.html; from that you'll see that the above-mentioned £2k is tax-free (just as is the first £12k of  normal earnings).

Dividends are not subject to NI. (CORRECTION: Dividends are subject to the new 1.25% NI levy!)

Typically your employer handles PAYE employment Income Tax and NI, but you have to do a tax return to declare your dividends.