The dividend allowance is a tax concession allowing you to receive a certain amount from dividends annually, exempt from taxation.
What is a dividend?A dividend is a disbursement given to shareholders from a limited company’s annual earnings. The calculation may only be performed after the deduction of Corporation Tax, VAT, and other relevant taxes.
This income is preferred by many because to its tax-efficient nature for withdrawing funds from a corporation. The tax rate on dividends is lower than that on your income or pension.
What is the mechanism of dividends?
When a corporation issues a dividend, it must convene a meeting with all directors to formally “declare” it, after which a voucher is generated with the pertinent information.
- Date of dividend disbursement
- Dividend valuation
- Corporate designation
- The identities of all stockholders entitled to receive the dividend.
Key considerations regarding the dividend allowance.
- The dividend allowed for the 2024/25 tax year is £500.
- Tax is applicable only on the dividends exceeding your dividend limit during that fiscal year.
- If you received profits within the allowance, no action is required on your part.
- Dividends from shares under a Stocks & Shares ISA are completely exempt from taxation, rendering the dividend allowance inapplicable.
To remit taxes on your dividends, you must complete a Self Assessment tax return. You may either do this yourself via HMRC online or let TaxScouts to handle it for you.