In the autumn 2022 statement the government announced that the dividend allowance will be reduced from April 2023 affecting around 54% of those receiving taxable dividend income.
The current dividend allowance is £2000 and this will be reduced to £1000 from the new tax year. In addition the new measures will reduce the tax free dividend allowance to £500 from 6 April 2024.
This is a significant reduction in the dividend allowance which effects both company directors and stock market investors.
Dividend income received through an ISA will remain tax free and will not be effected by the dividend allowance changes.
Government figures estimate that 3,235,000 taxpayers will be impacted in the 23/24 tax year with an average loss of £125. An increase in numbers effected is estimated at 4,405,000 for the 24/25 tax year with an average loss of £155.
Tax free dividend allowance 2023/2024 tax year
Since 2017 this is the second time the tax free dividend allowance has been reduced. In April 2018 the dividend allowance was lowered from £5000 to £2000.
A continued reduction of the dividend allowance has removed more than 50% of the relief in less than six years.
The income tax free personal allowance can still be used against dividend income along with the dividend allowance.
The Office for budget responsibility (OBR) has certified the figures below outlining the expected increase in government tax revenue from the reduction in tax free dividend allowance.
| 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | |
| +450 | +810 | +860 | +940 |
Have the dividend tax rates been changed?
Some positive news for taxpayers who received dividend income is that the government did not announce any rises to the dividend tax rates in the Autumn 2022 budget. In the Autumn budget 2021 an increase of 1.25% was applied to each of the three dividend tax rates.
This increased the ordinary dividend tax rate to 8.75% from 7.5%, the upper rate to 33.75% from 32.5% and the additional to 39.35% from 38.1%.
