How are dividends taxed for individuals in the UK?

Dividends in the UK are taxed based on an individual's total income, as this reflects the progressive nature of the tax system. Individuals receive a tax-free dividend allowance, which allows them to receive a certain amount of dividend income without incurring any tax. As of the current tax rules, this allowance is £2,000.

Once an individual's dividend income exceeds this allowance, it is then taxed at different rates depending on the individual's total taxable income and their income tax band. The rates for dividends are generally lower than the rates applied to other forms of income, reflecting government policy to encourage investment.

This tiered system allows lower earners to benefit from a reduced tax burden on their dividend income, while higher earners face progressively higher rates.

In contrast, the other responses misrepresent how dividend tax operates. While there is a dividend allowance, dividends can indeed be taxed above this threshold depending on the taxpayer's income level rather than a flat rate or a specific threshold amount.