For all individuals, the first £2,000 of dividend income is taxed at 0%.
In the Autumn 2022 Statement, Jeremy Hunt announced that this ‘dividend allowance’ of £2,000 will be reduced to £1,000 in the 2023/24 tax year and then again to just £500 in the 2024/25 tax year.
It should be remembered that at the Autumn Budget in 2021, the government announced that the income tax rates applied to dividend income, outside of the allowance would increase by 1.25% to 8.75% for the basic rate, 33.75% for the higher rate and 39.35% for the additional rate from April 2022.
| Dividend Tax Rate from 06 April 2022 | |
| Basic Rate | 8.75% |
| Higher Rate | 33.75% |
| Additional Rate | 39.35% |
What is a dividend?
In summary, dividends are a tax-efficient way of taking money out of a Limited company. The way this happens is when profit is accumulated after a Limited company pays its Corporation Tax. That amount can then be paid to its shareholders, however there is a limit on the total amounts of dividends paid out. For example, it cannot be more than the company’s profit in the previous, or current financial year.
What does this mean?
These new measures will mean that those reliant on dividend income will pay more tax.
The amount of tax you pay (please see the table below) will all depend on your income tax bands and how much of your income is above your personal allowance. Please note that some income is tax-free.
Dividend Allowances
| Tax Year | Dividend Allowance |
| 06 April 2024 – 05 April 2025 | £500 |
| 06 April 2023 – 05 April 2024 | £1,000 |
| 06 April 2022 – 05 April 2023 | £2,000 |
| 06 April 2021 – 05 April 2022 | £2,000 |
| 06 April 2020 – 05 April 2021 | £2,000 |
| 06 April 2019 – 05 April 2020 | £2,000 |
| 06 April 2018 – 05 April 2019 | £2,000 |
| 06 April 2017 – 05 April 2018 | £5,000 |
| 06 April 2016 – 05 April 2017 | £5,000 |
Different rules were used on dividend tax rates before 06 April 2016.
If you are a director-shareholder, or have dividend-earning investments, please contact the GreenStones team on 01733 371180 to discuss how the changes will impact you and what other strategies you might like to consider from 06 April 2023.