HMRC has published new guidance surrounding tax on dividend income, selling or disposing of shares, and ways people can report their dividends and capital gains.
The article below provides guidance from HMRC on how people can earn dividend income annually without paying tax, understand the effects of selling shares through tax-advantaged plans on your Capital Gains Tax liability, and learn various methods for declaring your dividends and capital gains to tax authorities.
Dividend income
HMRC’s guidance states that if you’re a shareholder in a business, you may receive dividend payments. The UK tax system allows for a certain amount of dividend income to be earned tax-free each year. If your dividend income falls within the annual dividend allowance, you’re not required to report it to HMRC.
Dividends from shares held within Individual Savings Accounts (ISAs) are exempt from taxation.
What do I do if I receive annual dividend earnings up to £10,000?
If your taxable dividend income for the tax year doesn’t go over £10,000, you have various options to tell HMRC:
- Call the Income Tax general enquiries helpline
- Inform HMRC you need an amended tax code – this allows the tax to be taken from your wages or pension
- Include the information on your Self Assessment tax return, if you’re already required to submit one
It’s important to choose the method that best suits your circumstances and existing tax arrangements.
What do I do if I receive annual dividend earnings over £10,000?
Once your taxable dividend incomes go beyond £10,000 in a tax year:
- You must return a filled in Self Assessment tax form.
- If you’re not currently in the Self Assessment system:
- Notify HMRC by October 5th following the related tax year.
- After registration, you’ll receive information to set up your Self Assessment account.
- Timely registration is vital to avoid possible penalties.
It’s important to note, this requirement applies to the tax year in which you received the dividend income. You must ensure you meet the deadline to stay compliant with HMRC regulations.
There are different rules if you are receiving dividends from businesses overseas.
HMRC guidelines on Share Incentive Plans (SIPs) and tax consequences
Dividend income in SIPs:
- Cash dividends from SIP shares might need to be reported to HMRC via the Income Tax contact helpline.
- Standard taxation applies unless dividends are reinvested.
- Tax benefits exist for reinvested dividends if shares are held for more than 3+ years or retracted due to qualifying reasons.
- Early withdrawal (before 3 years) due to non-qualifying reasons (e.g., resignation) makes dividends taxable in the withdrawal year.
Selling or disposing of shares from schemes
Capital Gains Tax may apply when selling shares from tax-advantaged schemes such as:
- Shared incentive plans (SIP)
- Save as you earn (SAYE)
- Company share option plan (CSOP)
- Enterprise management incentives (EMI); or other schemes.
HMRC advise you to calculate if gains exceed your tax-free allowance.
ISA transfers
- SIP shares or those from exercised SAYE choices can be transferred to stocks and shares ISA.
- These transfers are CGT-exempt, as is subsequent growth within the ISA.
- Transfers must happen within 90 days of exercising SAYE options or eliminating SIP shares.
- Yearly ISA subscription limits apply.
Working out your Capital Gains Tax and reporting
HMRC advises you to use the Capital Gains Tax calculator to work out your gain. Once you have worked that out you can then report your gains on the Self Assessment tax return in the relevant tax year once you’ve sold or disposed of your shares, see here for further guidance.
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A financial adviser can help you make the best use of your tax allowances, consider your overall wealth and financial objectives, and look at tax-efficient savings products. They can also assist in structuring your income tax efficiently, ensuring you maximise your financial benefits while staying compliant with HMRC regulations.
How can Nelsons help?
Zoe Till is a Partner and Chartered Financial Planner in our expert Independent financial advisers team. Zoe’s areas of expertise include investment advice, retirement planning, IHT and lifetime cash flow modelling.
If you would like any advice concerning the subjects discussed in this article, please get in touch with Zoe or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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