We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA

Dividend allowance is reduced from £2,000 to £1,000 from April 2023 and to £500 from April 2024. The threshold of £2,000 has been in place since April 2018. Dividend allowance was initially introduced in Finance Act 2016 which changed how dividends were taxed.

The main changes for dividend allowances in the Finance Act 2016 included:

  • a tax-free dividend allowance of £5,000 was introduced
  • the notional 10% tax credit on dividends was abolished
  • basic-rate taxpayers, who receive dividends of more than the dividend allowance and who do not complete tax returns otherwise, should notify HMRC and complete a self assessment return with this income included.

Dividends above the dividend allowance were taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate). From 6 April 2022, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).