The dividend tax allowance was first introduced in 2016 and replaced the old dividend tax credit with an annual £5,000 dividend allowance. Tax was payable on dividends received over this amount. The tax-free dividend allowance was reduced to £2,000 with effect from 6 April 2018 and has remain fixed at that level ever since.
This means that the tax rates for dividends received in 2022-23 (in excess of the dividend tax allowance) are taxed as follows:
- 8.75% for basic rate taxpayers will pay tax on dividends;
- 33.75% for higher rate taxpayers will pay tax on dividends; and
- 39.35% for additional rate taxpayers will pay tax on dividends.
Source:HM Revenue & Customs| 07-11-2022