Taxes on dividends

Anyone with shares in a company could find themselves earning a dividend payment. If you do, what taxes on dividends should you pay back to the government? The great news for most of us is that only those in the higher tax brackets will actually be asked to pay taxes on their dividends payments. Read on as we break it down for you.

Higher or additional rate tax payers

If you’re in the basic rate of 20% bracket, you won’t need to pay taxes on your dividend. This is the rate that allows you to earn between £0 and £31,785 and only pay out 20% in income tax. Those who earn £31,786 to £150,000 pay 40% of their income in tax. These guys also have to pay out 25% of the dividend’s value to the tax man. Society’s highest earners who pay 45% of their income to the taxman can expect to fork out 30.56% of their dividend to the government.

Taxes when you sell your shares

You only pay tax when the share is sold if you make a profit. Being that making a profit is normally the aim, most shareholders will be liable to pay something out to the government. This is called Capital Gains Tax and it works differently to income tax. There isn’t a simple calculation to work out what’s owed on Capital Gains Tax as this tax takes into account the amount of money you’ve earned from all your endeavours.

Corporate tax

If you’d like to know more about Capital Gains Tax and other forms of tax that affect businesses, click here for our guide to Corporate Tax.

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