Dividend Tax Increase from April 2022

Dividend Tax Increase from April 2022

The rate of tax on dividend income is to increase from April 2022.

At present, there is also a £2,000 annual tax-free allowance for dividend income.

There have been no changes announced to this annual limit, however the rate of tax that is charged on dividends above the annual limit is to increase:

Income BandCurrent Tax RateTax Rate from April 22Percentage Rate Increase
Basic Rate7.5%8.75%17%
Higher Rate32.5%33.75%3.9%
Additional Rate38.1%39.35%3.2%

You can see from the table above that there appears to be a much higher percentage increase in the tax rate to those within the basic rate band of tax. However the actual amount paid in extra tax remains the same for all three tax band groups.

An example, assuming someone receives £10,000 of dividend income pa (£8,000 taxable):

Income BandCurrent Tax RatesTax Rates from April 22Tax Paid Increase
Basic Rate£600£700£100
Higher Rate£2600£2700£100
Additional Rate£3048£3148£100

The last time the dividend tax rates changed, some company owners were able to take dividends earlier so that they fell in the year of the original rate. For those with professional investments, perhaps taking dividends as their retirement income, this option isn’t available.

For investments held within an ISA account, the dividend income isn’t taxable.

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