Dividend tax rate increase: the prime minister has announced a 1.25% increase to dividend tax rates from April 2022 as part of a package of measures to fund the costs of social care and the NHS.
At a glance
The changes to Dividend tax rates will sit alongside a proposal to raise the rates of National Insurance Contributions (NICs), also by 1.25% by way of a new Health and Social Care Levy. Both measures will be included in next year’s Finance Bill.
The new dividend tax rates, which will apply across the UK, are:
|
Tax band * |
Proposed from 2022-23 |
Current rates |
|
Basic rate |
8.75% |
7.5% |
|
Higher rate |
33.75% |
32.5% |
|
Additional rate |
39.35% |
38.1% |
* The 1.25% tax rise will apply to dividends above the tax bands in future years. The tax bands for 2022-23 remain the same as for 2021-22. See Tax Data Card 2021-22
The £2,000 Dividend allowance will continue to be available and dividends received by ISA’s will remain tax-free.
A knock on effect on s455?
- Since the rate of tax which applies to overdrawn Directors loan accounts under s455 CTA 2010 is directly linked to the dividend upper rate this will mean that the s455 rate will also increase from April 2022, from 32.5% to 33.75%.
The government says that it hopes to raise £0.6bn from the raise to dividend tax rates
Examples
Basic rate taxpayer
A taxpayer with non-dividend income of £38,000 and dividend income of £12,000, based on 2021-22 tax bands.
|
Income |
PA |
BR band 2022-23 |
BR band 2021-22 |
|
|
Non-dividend income |
38,000 |
12,570 |
||
|
Dividend |
12,000 |
0 |
12,000 |
12,000 |
|
Totals |
50,000 |
12,570 |
12,000 |
12,000 |
|
Less DA |
(2,000) |
(2,000) |
||
|
Taxed at 8.75%/7.5% |
10,000 |
10,000 |
||
|
Tax due |
|
|
£875 |
£750 |
|
Difference |
£125 |
Higher rate taxpayer
A taxpayer with non-dividend income of £88,000 and dividend income of £12,000, based on 2021-22 tax bands.
|
Income |
PA |
BR band 2022-23 |
HR band 2022-23 |
BR band 2021-22 |
HR band 2021-22 |
|
|
Non-dividend income |
88,000 |
12,570 |
37,700 |
37,730 |
37,700 |
37,730 |
|
Dividend |
12,000 |
- |
- |
12,000 |
- |
12,000 |
|
Totals |
100,000 |
12,570 |
37,700 |
49,730 |
37,700 |
49,730 |
|
Dividend in BR/HR band |
- |
12,000 |
- |
12,000 |
||
|
Less DA |
|
(2,000) |
|
(2,000) | ||
|
Dividend taxed at 33.75%/32.5% |
10,000 |
10,000 |
||||
|
Tax due on dividend |
|
|
|
£3,375 |
|
£3,250 |
|
Difference |
|
£125 |
|
|
Additional rate taxpayer
A taxpayer with a salary of £147,000 and dividend income of £25,000, based on 2021-22 tax bands.
|
Tax paid 2022-23 |
Tax paid 2021-22 |
|
|
Salary £147,000 |
||
|
£0 covered by personal allowance (lost due to income level) |
- |
- |
|
£37,700 taxed at basic rate 20% |
7,540 |
7,540 |
|
£109,300 taxed at higher rate 40% |
43,720 |
43,720 |
|
Balance of higher rate band remaining £3,000 |
||
|
Dividend £25,000 |
||
|
£3,000 falls within higher rate band with £2,000 covered by the dividend allowance |
325 |
325 |
|
£22,000 falls within the upper rate band and is taxed at 39.35%/38.1% |
8,657 |
8,382 |
|
Total tax payable |
£60,242 |
£59,967 |
|
Difference |
£275 |
Useful guides on this topic
Dividend tax (subscriber guide)
This practical tax guide explains how dividends are taxed on or after 6 April 2016. It includes HMRC's own examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.
Do I pay a salary or dividend? 2021/22
This guide explores the tax-planning points and pitfalls of using dividends to create a tax-efficient pay package.
Dividend tax: trusts
This is a guide to the impact of the new dividend tax regime on trusts and their beneficiaries.
Dividend taxation for non-UK residents
This guide considers how the introduction of the new dividend taxation legislation from 6 April 2016 affects non-UK residents who are in receipt of dividends from UK companies.
External link
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