Dividend tax payers surge, with a significant increase of 100% over a two-year span, setting a new record at 3.7 million individuals.
Increase in Dividend Tax Payers Due to Reduced Tax-Free Allowance
The reduction of the dividend tax-free allowance in the UK has significantly increased the number of basic-rate taxpayers paying dividend tax, with the total number doubling from 1.9 million in 2022/23 to approximately 3.7 million in 2024/25.
This rise largely reflects policy changes that lowered the allowance from £2,000 in 2017/18, to £1,000 in April 2023, and then halved it again to £500 in April 2024.
Specifically, for basic-rate taxpayers, HMRC estimates about 2.15 million individuals had taxable dividend income in the 2024/25 tax year, a substantial increase compared with previous years. The reduction has broadened the tax net to include many ordinary investors who previously fell below the threshold, turning what once was a tax primarily affecting higher earners and business owners into one impacting millions of everyday investors.
HMRC’s original projections anticipated an increase of about 635,000 new taxpayers affected in 2023/24 and 1.1 million more in 2024/25, but updated figures show about 865,000 and 480,000 new taxpayers respectively, totaling more than 1.3 million additional dividend taxpayers over two years.
The revenue impact is notable, with HMRC estimating that the £500 allowance cut alone would raise approximately £450 million in 2024/25, increasing further in subsequent years.
As the number of individuals paying tax on dividend payments is expected to reach a record 3.67 million in the last tax year, many are turning to tax-efficient wrappers like ISAs and pensions to mitigate the tax impact. Rachael Griffin, a tax and financial planning expert, suggests seeking financial advice if one is unsure about the tax environment.
In light of these changes, as interest rates start to fall, more people are likely to look to investing as a way to grow their money. However, it is crucial to understand the tax implications and seek advice to ensure one's investments are as tax-efficient as possible.
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[3] Affiliate Link (2024). Motoring Offer. [Online] Available at: https://affiliate.link/motoring-offer
[4] Affiliate Link (2024). Cash Isa Offer. [Online] Available at: https://affiliate.link/cash-isa-offer
[5] Affiliate Link (2024). Investing Isa Offer. [Online] Available at: https://affiliate.link/investing-isa-offer
[6] Affiliate Link (2024). No-Fees Fund Offer. [Online] Available at: https://affiliate.link/no-fees-fund-offer
[7] This is Money (2024). Dividend Tax Changes Explained. [Online] Available at: https://www.thisismoney.co.uk/money/tax/article-11252431/Dividend-tax-changes-explained.html
- Seeking financial advice is essential for individuals unsure about the tax environment, as an increasing number of people pay dividend tax and falls below the threshold due to tax changes.
- With the reduction in dividend tax-free allowance, more individuals are turning to tax-efficient wrappers like ISAs, pensions, and investments to minimize tax implications.
- As interest rates fall and the number of dividend taxpayers increases, many people are opting to invest their money, yet being mindful of the tax implications is crucial before making any investment decisions.
