Severn Accounting
Tax & Accounting

Have you used your 202324 dividend allowance

By Ali Jaw ·

Dividend income can be a useful source of revenue for many UK taxpayers, whether you’re a business owner, investor, or both. However, it’s easy to overlook the tax implications—particularly if you’ve received dividends throughout the 2023/24 tax year without considering how much you’ve already used of your dividend allowance. With the self-assessment deadline fast approaching, now is the perfect time to review your position and ensure you’re not paying more tax than necessary.

Understanding the dividend allowance

The dividend allowance for the 2023/24 tax year remains at £500. This means the first £500 of dividend income you receive in a tax year is completely tax-free, regardless of your income tax band. This applies to all UK residents who receive dividends from shares, unit trusts, investment trusts, and qualifying corporate bonds.

It’s important to note that this allowance applies to all dividend income combined. If you’ve received dividends from multiple sources—perhaps from a personal investment portfolio, pension distributions, or shareholdings in a family company—they all count towards the same £500 threshold. Once you’ve used your allowance, any additional dividends are taxed at the appropriate rate for your income band.

How dividends are taxed after the allowance

After you’ve exhausted your £500 allowance, dividend income is taxed at different rates depending on your income tax band:

  • Basic rate taxpayers (up to £50,270): 8.75% on dividends
  • Higher rate taxpayers (£50,271 to £125,140): 33.75% on dividends
  • Additional rate taxpayers (over £125,140): 39.35% on dividends

It’s worth noting that dividend income is treated as the top slice of your income. This means if you’re close to a tax band boundary, receiving additional dividends could push you into a higher tax bracket, resulting in a higher effective tax rate. For example, if you’re a basic rate taxpayer earning £48,000 and receive £2,500 in dividends, £2,270 would be taxed at the higher rate of 33.75%.

Have you kept records of your dividend payments?

This is where many taxpayers run into difficulty. If you’ve received dividends throughout 2023/24—perhaps quarterly distributions, special dividends, or irregular payments—do you have clear records of the amounts and dates? HMRC will expect you to declare all dividend income on your self-assessment tax return, and dividend-paying companies should provide you with documentation (such as dividend vouchers or statements from your investment platform).

If you’re a director or shareholder in a limited company, be particularly careful to distinguish between dividends and salary. Only actual dividend payments count towards your allowance; salary is taxed under different rules and doesn’t benefit from the dividend allowance.

Check your bank statements, investment platform statements, and any correspondence from companies whose shares you hold. Many taxpayers are surprised by the total when they sit down to calculate it properly. If you’ve already exceeded your £500 allowance, you’ll need to ensure the excess is correctly declared and the appropriate tax is calculated.

Planning ahead for 2024/25

If you’ve used most or all of your dividend allowance in 2023/24, it’s worth considering your dividend strategy going forward. The 2024/25 allowance will remain at £500 (as confirmed by HMRC), so the same principles apply.

If you’re a business owner, you might consider the balance between taking dividends versus salary. If you’re an investor, you could explore whether tax-efficient investment vehicles—such as Individual Savings Accounts (ISAs) or pension contributions—might be more suitable for your circumstances.

Next steps

Self-assessment returns must be submitted by 31 January 2025 for the 2023/24 tax year. If you owe tax on dividend income, it’s vital to declare it correctly to avoid penalties and interest charges.

If you’re uncertain about your dividend income, how much you’ve used of your allowance, or how dividends interact with your other income sources, professional guidance can save you money and stress. Tax rules around dividends can be complex, particularly if you have multiple income streams or are approaching a tax band boundary.

For tailored advice, contact Severn Accounting—we’re here to help.