Chancellor Jeremy Hunt has lowered the tax-free allowance for dividends from £2,000 to £1,000.
He announced his decision today (17 November) at the Autumn Statement.
The dividend allowance will be cut from £2,000 to £1,000 next year. From April 2024, it will then be reduced to £500.
Experts had anticipated this move. Interactive investor senior personal finance analyst Myron Jobson warned ahead of the Autumn Statement that the tax-free allowance for dividends could be in the government’s “firing line”.
| Tax band | Tax rate on dividends over the allowance |
|---|---|
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
He said: “Having remained at £2,000 for the past five years, where previously it was £5,000, the latest whispers from Whitehall suggest that the threshold for dividend tax could be lowered – meaning more people will be liable to pay the tax.
“This would hit those who have income investment held outside an ISA. Rumoured changes to dividend tax is a timely reminder of the benefits of investing through an ISA, which comes with a generous annual allowance of £20,000.
“Now may be a good time for investors to think about Bed and ISA applications. It means selling and buying back shares, which could trigger a capital gains tax implications, but it is good way to fund your ISA using your existing investments – particularly helpful in a cost-of-living crisis where some people may have less ‘new’ money to commit.”
