New Dividend Tax Rates from April 2023 – Dividend Allowance Cut in Half!
26/11/2022 - 4 minutes readOn 17th October 2022, Jeremy Hunt cancelled the proposed 1.25% reduction on the dividend tax rates so there will be no changes to the dividend tax rates in 2023/24 and they will remain exactly the same as dividend tax rates applicable in 2022/23.
On 17th November 2022, Jeremy Hunt also reduced the annual dividend allowance from £2,000 down to £1,000 per annum effective from April 2023. This annual dividend allowance will be reduced further down to £500 per annum from April 2024 onwards.
New dividend tax rates applicable from 06 April 2023 onwards that were announced in the Mini Budget by the Chancellor of the Exchequer, Kwasi Kwarteng which form part of his growth plan have been reversed by the current Chancellor of the Exchequer, Jeremy Hunt on 17th October 2022
New dividend tax rates were going to result in a reduction of 1.25% dividend tax across the board for the basic rate as well as a higher rate tax band for taxpayers and due to the abolition of the additional rate of income tax, dividend income that was previously charged at the additional rate (39.35% in 2022/23), was proposed to be charged at the upper rate of 32.5% from the tax year 2023/24 onwards thereby resulting in a huge benefit of 6.85% to additional rate taxpayers.
However, after cross-party criticism, the Chancellor made a U-turn on 03rd October and confirmed that the additional rate of income tax & dividend tax will not be cut beyond the 1.25% proposed reduction across the board so additional rate taxpayers would have to pay 38.1% dividend tax from the tax year 2023/24 onwards.
How dividends are taxed
You may get a dividend payment if you own shares in a company.
You can earn some dividend income each year without paying taxes.
You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).
You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.
You do not pay tax on dividends from shares in an ISA.
Dividend allowance
| Tax year | Dividend allowance |
|---|---|
| 6 April 2022 to 5 April 2023 | £2,000 |
| 6 April 2021 to 5 April 2022 | £2,000 |
| 6 April 2020 to 5 April 2021 | £2,000 |
| 6 April 2019 to 5 April 2020 | £2,000 |
| 6 April 2018 to 5 April 2019 | £2,000 |
| 6 April 2017 to 5 April 2018 | £5,000 |
| 6 April 2016 to 5 April 2017 | £5,000 |
The rules are different for dividends before 6 April 2016.
Pay tax on up to £10,000 in dividends
Tell HMRC by:
- – contacting the helpline
- – asking HMRC to change your tax code – the tax will be taken from your wages or pension
- – putting it in your Self Assessment tax return, if you already fill one in
You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.
Pay tax on over £10,000 in dividends
You’ll need to fill in a Self Assessment tax return.
If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you would like further information about New Dividend tax rates from April 2023 or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.
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