Tax on Dividends & Interest

Dividends paid by UK resident companies to shareholders attract dividend tax according to their income tax bands. Basic rate taxpayers pay 7.5% dividend tax, higher rate 32.5% and additional rate taxpayers 38.1%. This is regardless of whether dividends are taken as cash income or reinvested. The annual dividend allowance lets the first £2,000 of dividends be received tax free. Dividends above this threshold are declared on self assessment returns and taxed at the relevant rate. Tax rates are subject to change for coming tax years.

Yes, foreign dividend income received by UK residents is subject to UK income tax. Dividends from overseas companies must be reported on your UK self assessment alongside any UK dividends. The same dividend allowance and tax rates apply. Any foreign dividend tax withheld at source can typically be credited against your UK tax liability, subject to limits.

Standard UK bank account interest is taxable as savings income. The Personal Savings Allowance exempts the first £1,000 of interest for basic rate taxpayers or £500 for higher rate taxpayers. Interest above these allowances is taxed at your marginal income tax band – 20% basic rate, 40% higher rate or 45% additional rate. Non-residents may have interest paid to them gross without deduction of tax.

Yes, interest earned on overseas accounts owned by UK tax residents is subject to UK tax. Whether the account is based in the Channel Islands, Isle of Man, Cyprus, Dubai or elsewhere, you must still declare this on your UK self assessment return. The same Personal Savings Allowance will apply and additional tax may be due above the exempt threshold based on your tax band.

For jointly owned offshore investments like bonds, each spouse is usually entitled to use their own Personal Savings Allowance against a share of the interest. You should agree an ownership split and report this proportion of the income on each return. If ownership is unclear, HMRC may apply a default 50/50 split. Keeping records of contributions can help evidence the split.

Undeclared offshore income is treated very seriously by HMRC and can result in substantial back taxes, interest, penalties and investigations if later discovered. Failure to declare offshore investment earnings above the relevant allowances constitutes evasion. With recent international tax cooperation, non-compliance carries high risk of detection nowadays.