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Reduction in the dividend allowance

The dividend tax rates were increased by 1.25% from 6 April 2022 as part of a package of measures to fund health and adult social care. Despite the cancellation of the Health and Social Care Levy, the dividend tax rates will remain at 8.75% where the dividends fall within the basic rate band, at 33.75% where the dividends fall within the higher rate band and at 39.35% where the dividends fall within the additional rate band.

Dividends sheltered by the dividend allowance are tax free. The dividend allowance is set at £2,000 for 2022/23. However, it is to fall to £1,000 for 2023/24 and to £500 for 2024/25.

If you operate your business as a personal or family company and extract profits in the form of dividends, this will affect you.

All taxpayers regardless of the rate at which they pay tax are entitled to a dividend allowance. In a family company situation, it is advisable to assess whether any shareholders have not fully used their dividend allowance for 2022/23 and, where this is the case, consider whether it would be beneficial to pay a dividend on or before 5 April 2023 to take advantage of the remaining allowance.


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