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ACCA Strategic Professional · Advanced Taxation (UK) · Mitigation of tax by numerical analysis and reasoned argument

Harriet is a higher rate taxpayer whose taxable non-savings income already exceeds £37,700. She receives dividends of £10,000, which fall wholly within the higher rate band. Using the rates and bands for Finance Act 2025, what is the income tax payable on the dividends?

The tax is £3,206.25. The first £500 of dividends is covered by the dividend nil rate band and taxed at 0%, and the remaining £9,500 falls in the higher rate band, where dividends are taxed at 33.75%.

  1. A£831.25
  2. B£3,206.25Correct
  3. C£3,375.00
  4. D£3,800.00

Explanation

The first £500 of dividends falls in the dividend nil rate band and is taxed at 0%. The remaining £9,500 is taxed at the higher dividend rate of 33.75%, giving £3,206.25. Taxing the full £10,000 at 33.75% (£3,375) ignores the nil rate band.

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