Dividend tax increases

If you have been keeping up with announcements from Downing Street, you will know that from April 2022 the hybrid rates of Income Tax on dividend income are increasing by 1.25 percentage points.

The changes from April 2022 are:

  • The first £2,000 of dividends received are free of any additional tax charge, no change here.
  • If you are a basic rate tax payer, your dividend income in excess of £2,000 will be taxed at 8.75% (presently 7.5%).
  • If you are a higher rate tax payer, any dividend income that falls into the higher rate band will be taxed at 33.75% (presently 32.5%).
  • If you are an additional rate tax payer, any dividend income that falls into the additional rate band will be taxed at 39.35% (presently 38.1%).

Even with these increases, it is likely that director/shareholders adopting the high dividend, low salary strategy will still save on NIC costs.

Savers who have their funds in tax-exempt wrappers, ISAs for example, will be unaffected.

Other savers would need to have fairly significant portfolios outside tax exempt investments in order to pay any dividend tax. With average dividend yields running at approximately 3.5%, you would need to have a portfolio in excess of £57,000 to breach the £2,000 tax-free limit.

Latest Blog
02
Dec

Tax Diary December 2021/January 2022

1 December 2021 – Due date for corporation tax payable for the year ended 28 Fe...

Read More
02
Dec

Budget bad news 27 October 2021

Readers should take note of the following changes: Income Tax Allowances frozen: The ...

Read More
02
Dec

Budget bonuses 27 October 2021

There was little good cheer in the Chancellor’s announcements to parliament on ...

Read More
02
Dec

Business gifts and tax

Business gifts are not allowed as a tax deduction against profits. The legislation tr...

Read More

CONTACT SIMON COOPER