Income Tax on Savings & Dividends


Income tax rates and personal allowances

On 6 April 2016 a tax-free Personal Savings Allowance (PSA) was introduced for savings income (such as interest) paid to individuals. Broadly, this means that basic rate tax payers will be able to receive up to £1,000 of savings income, and higher rate taxpayers can receive up to £500 of savings income, without any tax being due. The PSA will not be available to any saver with additional rate income. Alongside the introduction of the PSA, banks, building societies and NS&I will cease to deduct tax from account interest they pay to customers

From April 2016 the Dividend Tax Credit was replaced by a new tax-free Dividend Allowance. The new allowance means that you won’t have to pay tax on the first £5,000 of your dividend income. The allowance is available to anyone who has dividend income.

The headline rates of dividend tax have also changed. You’ll pay tax on any dividends you receive over £5,000 at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

This simpler system will mean that only those with significant dividend income will pay more tax.

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