Budget 2021: Tax on dividends

In September 2021 the government announced an increase to the rates of dividend tax by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care, this is the first-rate rise since April 2018. In the Budget 2021 dividend tax rises were confirmed.

The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance).

Dividends received above the allowance are taxed at the following rates for 2021/22:

• 7.5% for basic rate taxpayers

• 32.5% for higher rate taxpayers

• 38.1% for additional rate taxpayers.

The new rates will therefore be for 2022/23:

• 8.75% for basic rate taxpayers

• 33.75% for higher rate taxpayers

• 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed. Dividends on shares held in ISAs and pension schemes are not subject to dividend tax and thus will not be affected by the increase in rates.

Fabrizia Beux

Photo by Michael Longmire on Unsplash