As with the national insurance tax hike, the government yesterday also announced that UK Business Owners (ie: individuals who own shares in their private unlisted companies), as well as investors who own shares in listed public companies (that are not protected within tax wrappers), will also be asked to pay an additional 1.25% in the tax on share dividend income from April 2022.
Alongside the levy which will be paid by employees, the self-employed, and businesses, the government has announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. However, for the moment, the £2,000 dividend allowance will remain.
The increase in dividend tax rates will be legislated for in the next Finance Bill and the government estimates that 70% of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.
Anyone taking home more than £2,000 a year is set to face a slightly higher bill. For example, the Basic-rate payers receiving £3,000 in dividends must pay this additional dividend tax on £1,000 and will see their bill rise from £75 to £87.50. In other words, for every £1,000 of dividends, there will be an additional tax of £12.50.
The tax-raising measures and their impacts are outlined in the government’s plan for health and social care, which was published alongside the Prime Minister’s speech. It estimates that of the £12bn revenue expected to be raised each year, £11.4bn will come from the levy.
There may be a benefit in planning your dividends in advance of the changes from 6 April 2022, depending on your income levels. Please talk to one of the team if you would like to see how we can help you mitigate the rise.