What is dividend tax?
It’s a type of income tax you pay if a company you hold shares in distributes its profits in the form of a dividend. Dividends can provide you with a steady stream of income, but depending on how much you earn, you might have to pay tax on that income.
Where have you heard about dividend tax?
In the UK, the tax rates on dividends are different to the income tax rates you pay on your salary or pension. You also get a tax-free allowance, which allows you to earn a certain amount in dividends before you pay tax. From April 6, 2018, the threshold has been pushed down to £2,000.
What you need to know about dividend tax.
If you have a stocks and shares ISA, you don't have to pay dividend tax on shares you hold in it as ISAs are tax-free investments.
Critics of dividend tax make the point that investors shouldn’t have to pay this tax because a company will have already paid taxes on its profits. Those who support dividend tax say that even though a company has paid corporate taxes, the dividends still represent an increase in income for investors.