Employment Related Securities Bulletin 56 (July 2024)
Find out about tax on dividend income, selling or disposing of shares and ways you can report your dividends and capital gains.
Find out about how you can earn dividend income each year without paying tax, how selling or disposing of shares through tax-advantaged schemes impacts Capital Gains Tax and ways you can report your dividends and capital gains.
Dividend income
You may get a dividend payment if you own shares in a company. You can earn some dividend income each year without paying tax and you do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.
Find out more information about the dividend allowance and paying tax on dividend income.
If you receive dividends from shares held in Individual Savings Accounts (ISAs) you will not have to pay tax on these.
A company might make other types of distributions which may be subject to tax. Find out more information about dividends and other company distributions.
Dividend income up to £10,000
If you have received up to £10,000 in taxable dividends in a tax year, you can tell HMRC by:
- contacting the Income Tax general enquiries helpline
- asking HMRC to change your tax code — the tax will be taken from your wages or pension
- putting it on your Self Assessment tax return if you already fill one in
Dividend income over £10,000
If you have received over £10,000 in taxable dividends in a tax year, you’ll need to fill in a Self Assessment tax return. If you do not usually send a tax return, you need to register by 5 October following the tax year you received the income. Once you’ve registered you’ll get a letter telling you to register for Self Assessment.
Receiving dividends from non-UK companies
If you receive dividends from a non-UK company, overseas withholding tax might have been deducted when they were paid. You may be able to take a foreign tax credit for this or reclaim some of the overseas tax withheld under a double tax treaty. Find out more information about tax on foreign incomes and relief for foreign tax paid.
Share Incentive plans
Special rules can apply to any dividends you receive on shares that you hold inside a Share Incentive Plan (SIP).
If you receive a cash payment for the dividend income from shares held in a SIP, you may need to tell HMRC by contacting the Income Tax general enquiries helpline.
Dividends from SIP shares are taxed in the normal way unless they are reinvested. There are tax advantages if your dividend income is reinvested within the SIP and SIP dividend shares are acquired. Reinvested dividends are free of tax provided that the dividend shares acquired are held within the SIP for 3 years or more or taken out of the SIP due to a qualifying leaver reason.
However, dividend income becomes taxable if you withdraw your SIP dividend shares before the end of the 3 year holding period due to a non qualifying leaver reason, for example resignation.
If this is applicable, the dividends that were used to buy the dividend shares are taxed in the year the Dividend Shares are withdrawn from the SIP, and you may need to tell HMRC.
Find out more information on SIP dividends.
Selling or disposing of shares
If you sell or dispose of the shares you acquire through a share scheme, whether a tax-advantaged scheme like a Shares Incentive Plan (SIP), Save As You Earn (SAYE), Company Share Option Plan (CSOP), or Enterprise Management Incentives (EMI), or other scheme, you may need to pay Capital Gains Tax. You will need to work out whether your gains are above your tax free allowance.
Find out more information about tax when you sell your shares.
Special rules let you transfer into a stocks and shares Individual Savings Account (ISA) any shares that you take out from a SIP or receive when you exercise a SAYE scheme option. Transferring SAYE or SIP shares to an ISA is not chargeable under Capital Gains Tax, nor is any growth in value of your shares within the ISA.
However, transfers must be made within 90 days of exercising the SAYE option or removing the shares from a SIP and are subject to the annual ISA subscription limit.
Working out your gain
To help work out your gain:
- you can use the calculate your Capital Gains Tax calculator if you sold shares that were the same type, acquired in the same company on the same date and sold at the same time
- the Self Assessment helpsheet (HS284) explains the basic Capital Gains Tax rules which apply in simple cases — it may help you work out the capital gain or loss if you’ve disposed of shares in the tax year
If you sell shares that have already been taxed as employment income (for example, if you received them when you exercised a non-tax-advantaged option), you should not pay both Income Tax and Capital Gains Tax on the same amount. However, detailed rules apply, and further information is available in the Capital Gains Tax Manual.
Reporting and paying your Capital Gains Tax
Once you’ve calculated your gain, you can find out more information about how to report and pay your Capital Gains Tax.
You can report your gains on a Self Assessment tax return in the tax year after you sold or disposed of your shares.
If you need to submit a Self Assessment return to report your Capital Gains Tax you can use Self Assessment helpsheet 207 to help you complete the Capital Gains Tax summary pages.
In some circumstances you can use the real time reporting service to report your Capital Gains Tax, including how to report and pay Capital Gains Tax using the tool. If you are registered for Self Assessment and use the online reporting tool, you will still need to include details of the sale and the tax paid on your Self Assessment tax return afterwards.
Record keeping
It’s important to keep records because you will be asked to provide details about the gain. You may be asked about:
- the asset type
- details of the asset
- the date you became the owner
- how you became the owner
- the amount you paid when you became the owner
- the date you stopped being the owner
- how much you received when you stopped being the owner
- whether you are claiming relief or allowable losses in your calculation
- the value of any exempt amount used
Ways to report dividends and capital gains
| Reporting method | Dividend Income | Capital Gains Tax |
|---|---|---|
| Report using Self Assessment | If you already registered for Self Assessment or if your dividend income is over £10,000, then you will need to report this on your Self Assessment return. | If you have multiple gains to report, you will need to report them through Self Assessment. If you’re already registered for Self Assessment, you should report the gain from the sale of your shares on your Self Assessment return. If you are registered for Self Assessment and use the online reporting tool, you will still need to include details of the sale and the tax paid on your Self Assessment tax return afterwards. If someone normally does your reporting for you, then they should include the gain from the sale of your shares on your Self Assessment return. |
| Online reporting tool | There is no real time online reporting tool available currently | If you’ve sold or disposed of shares within the tax year and you do not have any other reportable gains you may be able to use the online tool in certain circumstances. Check Report and pay your Capital Gains Tax to find out if you can use the real time reporting tool. |
| Change your tax code | If you have received less than £10,000 in dividends, you can contact HMRC to change your tax code. | Not applicable. |
For more information about Capital Gains Tax and tax when you sell your shares read Capital Gains Tax: what you pay it on, rates and allowances.