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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: property and investment income

Hannah has employment income of £62,570 and receives dividends of £10,000. Her personal allowance is £12,570 and she has no other income. Using the Finance Act 2025 rates (basic rate band £37,700, dividend ordinary rate 8.75%, upper rate 33.75%, dividend nil rate band £500), what is her income tax on the dividends?

The dividend tax is £3,206.25. Hannah's taxable employment income already fills the basic rate band, so the dividends fall in the higher rate band. The first £500 is taxed at 0% and the remaining £9,500 at 33.75%.

  1. A£3,206.25Correct
  2. B£3,375.00
  3. C£831.25
  4. D£3,738.25

Explanation

Employment income after the personal allowance is £50,000, which uses the whole £37,700 basic rate band and extends into the higher rate band. The dividends are therefore all taxed above the basic rate band. The first £500 is covered by the dividend nil rate band, and the remaining £9,500 at 33.75% gives £3,206.25. Ignoring the nil rate band gives £3,375, and using 8.75% gives £831.25.

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