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The tax free Dividend Allowance is worth £2,000 per year in the 2022/2023 tax year.

What is a dividend?

A dividend is the payment of part of a company’s profits made to its

shareholders. Payment can be made in cash, or as further shares in the company.

If you own company shares, for instance in a large FTSE100 company, or you are

a small business owner set up as a corporation, you may receive a dividend payment.

However, the new tax-free Dividend Allowance means that dividend payments can also

be made from Open Ended Investment Companies (OEICs), unit trusts and investment

trusts, where they are invested in funds that have less than 60% invested in cash or

fixed interest (classed as equity funds). Under the Dividend Allowance, the income

generated by the investment may be tax-free, depending on whether you have any

other dividend income to take account of.

How do unit trusts and OEICs pay returns?

Most unit trusts and OEICs are available in both income and accumulation

share classes; the difference being down to how income is classed.

You can choose income units if you want to receive a payout of any interest earned

by the fund, or accumulation units if you prefer to reinvest any growth back into the

fund in order to grow the value of your investment. While investors will often be attracted

by the potential for income, most will also want to see long-term capital growth.

Returns from funds are typically paid through regular distributions (monthly, quarterly

or half-yearly, depending on the type of fund) and derive from income received from

the fund’s underlying holdings. This could include share dividends, coupons from bonds,

or rent from property.

All taxpayers who receive dividends of more than £2,000 need to complete

a Self Assessment return. Dividends received into Individual Savings Accounts

(ISAs) and pensions do not count towards your Dividend Allowance.

Dividends above the allowance are taxed as follows:

Rate of tax: Tax rate on dividends above £2,000

Basic Rate tax-payers 7.5%

Higher Rate tax-payers 32.5%

Additional Rate tax-payers 38.1%


This information is based on our current understanding of the rules for the 2022/2023 tax year. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.

We can help you achieve a tax-efficient financial plan by providing advice that’s based on a thorough understanding of your personal circumstances and goals. Please get in touch to find out more.

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