In the Budget, the rates for dividend tax rises were confirmed from the new tax year in April 2022 to fund the social care levy, announced last month
This measure increases the rates of income tax payable on dividend income by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be 33.75% and the dividend additional rate will be 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.
The changes will apply UK-wide and will take effect from 6 April 2022. This is the first rate rise since April 2018.
Any individual who has dividend income can benefit from the dividend allowance which has been set at £2,000 since April 2018.
This measure is set to raise £1.34bn in tax year 2022-23, and then an estimated £540m annually for the next four years.
It is estimated that this will affect 2.5m individuals in the year 2022-23. Shares held in ISAs are not subject to dividend tax and, due to the £2,000 tax-free dividend allowance and the personal allowance, around 59% of individuals with dividend income outside of ISAs are not expected to pay any dividend tax, or be affected by this change. The average loss of those affected is around £335.
HMRC will need to make changes to IT systems to deliver this change which are currently estimated to cost in the region of £530,000.
Legislation will be introduced in Finance Bill 2021-22 to change sections 8 and 9 of the Income Tax Act 2007 to increase the rates of tax applicable to dividend income including the dividend trust rate. This will also have the effect of raising the rate of tax charged under s455, Corporation Tax Act 2010 on loans to participators and on personal representatives that are liable to tax on dividends paid into estates of deceased persons under s14 of the Income Tax Act 2007.