Tax on dividends

Currently, the first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). This will be reduced to £1,000 for 2023/24 and £500 for 2024/25.

These changes will apply to the whole of the UK.

Dividends received above the allowance are taxed at the following rates for 2023/24:

•          8.75% for basic rate taxpayers

•          33.75% for higher rate taxpayers

•          39.35% for additional rate taxpayers.

As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.

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.

Comment

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.