Share scheme returns: dividend taxation changes

Posted by Jennifer at 10:22 on 3 May 2016


As annual return time arrives for share schemes, it's important to remember the changes that apply to the taxation of dividends. As of 6 April this year, there is no longer any such thing as a dividend tax credit. The tax treatment relating to dividends paid to UK resident individuals is now as follows:

  • First £5,000 of dividends: tax free
  • Dividend income exceeding £5,000 is taxed according to the individual's own tax rate:
    • Basic rate taxpayers – 7.5%
    • Higher rate taxpayers – 32.5%
    • Additional rate tax payers – 38.1%

Note that the first £5,000 of dividends is free from tax but the amount is still included in the taxpayer's annual income. This can make a difference to the rate of tax charged on dividends paid above the £5,000 exempt amount. More information is available from HMRC.

If you need guidance on preparing annual returns for your share schemes please contact RM2.