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Do I need to declare dividends on my self-assessment tax return?

Cut: The government has halved the tax-free dividend allowance and investors will now have to pay tax on income over £1,000 from next month

More and more investors rely on dividend income as inflation erodes their savings reserves.

At the same time, the government will halve the non-taxable allowance for dividend income, from £2,000 to £1,000 next month.

It will then drop to £500 from April 2024, as part of the Treasury’s tax raid on savers.

Investors who hold their investments outside of Isas and pensions need to consider the amount of dividend tax they will have to pay in the next tax year.

We look at when you have to pay tax on additional income and whether you have to report it to HMRC.

Cut: The government has halved the tax-free dividend allowance and investors will now have to pay tax on income over £1,000 from next month

Cut: The government has halved the tax-free dividend allowance and investors will now have to pay tax on income over £1,000 from next month

When do you have to pay tax on dividends?

The dividend allowance will soon increase to £1,000 for the 2023/2024 tax year, meaning you don’t have to pay tax on any dividend payments you receive up to this amount.

If you are a basic rate taxpayer, you will pay 8.75% tax on dividend payments over the £1,000 limit.

Those in the highest tax bracket pay 33.75% and this rate increases to 39.35% for additional rate taxpayers.

When you sell your shares you may also have to pay tax – read our guide to capital gains tax here.

If you hold your investments in an Isa, you don’t have to worry about paying tax on the dividend payments from the shares because they are in tax-free packaging.

Do you have to declare dividends on your tax return?

Many changes have been made to dividend tax in recent years, which means it can be difficult to determine when and how much tax you have to pay.

The dividend allowance was introduced at £5,000 before a drastic reduction of 60% in 2018, and will drop next year to £500, meaning more people will have to pay tax on their dividends.

So when should you include dividends on your self-assessment form, and who should?

Tax due: If you receive more than £1000 in dividends on your investments and you are not yet filing a tax return, you should register for self-assessment.

Tax due: If you receive more than £1000 in dividends on your investments and you are not yet filing a tax return, you should register for self-assessment.

Someone who is employed and paid through PAYE, whose only reason to file a self-assessment tax return is because they have exceeded the dividend limit, will obviously need to include dividend income.

It gets a bit trickier for those who are unsure or about to hit the dividend limit. The same goes for those who regularly submit self-assessment tax returns for other reasons.

Do they have to declare dividends even if they are not close to the limit?

Jason Hollands, managing director of wealth manager Evelyn Partners, says: “If you have already done a self-assessment for other reasons, you should declare dividends even if they are well below the dividend deduction.

“If you are not currently completing the self-assessment, but are receiving dividends over £1,000, you must register for the self-assessment.

“If the dividends received are less than this, the best course of action is to contact the HRMC helpline for advice.”

You do not need to include dividends from venture capital trusts (VCTs), as they are tax exempt.

However, you will need to include any VCT dividends reinvested through a Dividend Reinvestment Plan (Drip). This is when instead of receiving cash dividends, they are reinvested by subscribing for new shares.

In this scenario, you will need to include the reinvested VCT dividends in the box indicating whether new VCT subscriptions have been made.

How to protect yourself from dividend tax

Five things to consider when choosing an Isa investment platform

1. The cheapest is not always the best: You need to think about a combination of price and service – it’s worth paying for the quality, but make sure you actually get it.

2. What are you going to invest in: Different trading fees for stocks, investment trusts and funds mean you need to think about how you’re going to invest and tailor your choice accordingly.

3. Tools and information: What level of useful tools and information for portfolio building does a platform offer?

4. Global Fees: Don’t just look at administration fees or transaction fees. You have to combine the two to get an actual cost, as well as costs like dividend reinvestment and regular transaction fees. A low administration fee may sound good, but if you are an active investor who buys and sells a lot, trading fees will quickly increase and drive up costs.

5. Additional costs: Check regular monthly investment rebates, dividend reinvestment fees, transfer fees and other items

There are ways to protect yourself from dividend tax, primarily by placing your investments in a tax-free package of stocks and Isa shares.

This can be done by selling your investments and buying them back in a process known as Bed & Isa. Couples can also transfer assets between them tax-free to make the most of it.

Experts suggest investors consider prioritizing investments that pay high dividends when deciding to switch to your Isa.

However, if you keep growth stocks outside of your Isa, you need to consider capital gains tax, and you may want to take professional advice on how best to manage this.

An impending capital gains tax raid from April 6 will also reduce the tax-free annual allowance from £12,300 to £6,000. Those who have accrued substantial investment profits outside of an Isa may wish to consider selling some profits to the bank now while the larger capital gains tax allowance is still in place.

You might also consider investing more through your pension, as the government supplements contributions with tax relief. However, this money will be blocked until you turn 55. This figure increases to 57 in 2028, and any withdrawals beyond a tax-free lump sum of 25% are subject to income tax.

Compare the Best DIY Investment Platforms and Isa Stocks & Stocks

Investing online is simple, inexpensive and can be done from your computer, tablet or phone when and where it’s convenient for you.

When it comes to choosing a DIY investment platform, Isa stocks and shares, or a general investment account, the range of options can seem overwhelming.

Each provider has a slightly different offering, charging more or less for trading or holding stocks and providing access to a different range of stocks, funds and investment trusts.

When choosing the one that’s right for you, it’s important to consider the service it offers, as well as the administration and trading fees, and any other additional costs.

To help you compare the best investment accounts, we’ve analyzed the facts and put together a comprehensive guide to choosing the best and cheapest investment account for you.

We highlight the major players in the table below, but advise you to do your own research and consider the points in our full guide linked here.

>> This is Money’s complete guide to the best investment platforms and Isas

The platforms presented below are independently selected by This is Money’s specialist journalists. If you open an account using links that have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.

Administration fees Expense fund trading Standard Stock, Trust, ETF Trading Regular investment Reinvestment of dividends
A.J. Bell* 0.25% Max £3.50 per month for stocks, trusts, ETFs. £1.50 £9.95 £1.50 £1.50 per transaction More details
Bestinvest* 0.40% (0.2% for out-of-the-box wallets) Account maintenance fees reduced to 0.2% for ready-to-use investments Free £4.95 Free for funds Free for income funds More details
Charles Stanley live 0.35% No stock platform fees if a trade is made that month and an annual maximum of £240 Free £11.50 n / A n / A More details
Loyalty* 0.35% on funds Fees from £45 up to £7,500. Max £45 per year for stocks, trusts, ETFs Free £10 Free funds £1.50 stocks, ETF trusts £1.50 More details
Hargreaves Lansdown* 0.45% Capped at £45 for stocks, trusts and ETFs Free £11.95 £1.50 1% (minimum £1, maximum £10) More details
Interactive Investor* £9.99 per month, or £4.99 under £30,000, £12.99 for Sipp £5.99 per month back in free trading credit (not applicable to £4.99 plan) £5.99 £5.99 Free €0.99 More details
iWeb £100 single £5 £5 n / A 2%, maximum £5 More details
Etoro* Free but not Isa or Sipp The investment account offers stocks and ETFs. Beware of high risk CFDs in the trading account Not available Free n / A n / A More details
Free exchange* Free for Basic account, £4.99 per month for Standard account with Isa Freetrade Plus with more investments and Sipp is £9.99/month including tax. Isa Fee no funds Free n / A n / A More details
Avant-garde 0.15% Only Vanguard funds Free Free Vanguard ETFs only Free n / A More details
(Source: January 2023. A percentage administrative charge may be levied monthly or quarterly

Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any business relationship to affect our editorial independence.

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