AJ Bell press comment – 23 September 2022
- Highest rate of dividend tax is cut from 39.35% to 32.5%
- The 1.25% surcharge on all dividend rates will be scrapped from 2023/24
- The moves combined save someone with £50,000 of dividends £3,288 next year…
- …or someone with £10,000 of dividends £548 a year
Laura Suter, head of personal finance at AJ Bell, comments:
"The Chancellor’s plans to abolish the highest rate of dividend tax are the biggest shake-up to the system in years and will save the highest earning investors and company directors thousands of pounds each year. The move comes on top of previously announced plans to abolish the 1.25% increase that Rishi Sunak announced last year and the two together dramatically reduce the tax rates.
“The plan to abolish the highest rate of dividend tax will only benefit the wealthy, with those earning over £150,000 a year seeing their dividend tax rate cut from 39.35% this year to 32.5% next year. This represents an 18% reduction in the rate of tax these investors and company directors will pay. However, it will be felt the most by company directors, including the self-employed and contractors, who pay themselves via company dividends in addition to salary. Someone receiving £50,000 of dividends a year will save £3,288 next year in comparison to this year, while those taking £10,000 of dividends a year will be better off to the tune of £548.
“Retail investors will only benefit from the changes if they have significant portfolios outside of a pension or ISA, as these shelter dividends from tax. Even then, they will only see a lower tax bill if their annual dividends are over the annual dividend allowance of £2,000. To be in that position you’d have to have a portfolio of over £50,000 if it was yielding 4% a year.
“The move to abolish the 1.25% surcharge will save those receiving dividends £1.4bn in the next tax year, according to Government costings. However, it hasn’t broken out the cost of scrapping the highest rate of dividend tax. The stark difference between dividend rates this year and next will undoubtedly mean that some company directors who pay themselves via dividends will defer their payouts to next year and benefit from the lower tax rate.”
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Savings for additional rate taxpayer
|
|
|
Dividend level |
Tax saving between 2022/23 and 2023/24 |
|
£2,000 |
£0 |
|
£5,000 |
£206 |
|
£10,000 |
£548 |
|
£20,000 |
£1,233 |
|
£30,000 |
£1,918 |
|
£50,000 |
£3,288 |
|
Source: AJ Bell. Figures compare the 2022/23 tax year and the 1.25% surcharge on dividend tax rates with the planned system of 2023/24, where the additional rate is abolished and higher earners pay a maximum 32.5% dividend rate. |
|
|
Historic dividend tax rates |
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|
Date from |
Basic rate |
Higher rate |
Additional rate |
Dividend allowance |
|
06-Apr-16 |
0% |
25% |
30.56% |
£0 |
|
06-Apr-17 |
7.5% |
32.5% |
38.1% |
£5,000 |
|
06-Apr-18 |
7.5% |
32.5% |
38.1% |
£5,000 |
|
06-Apr-19 |
7.5% |
32.5% |
38.1% |
£2,000 |
|
06-Apr-20 |
7.5% |
32.5% |
38.1% |
£2,000 |
|
06-Apr-21 |
7.5% |
32.5% |
38.1% |
£2,000 |
|
06-Apr-22 |
8.75% |
33.75% |
39.35% |
£2,000 |
|
06-Apr-23 |
7.5% |
32.5% |
NA |
£2,000 |
|
Source: AJ Bell. April 2023 figures based on Government plans. |
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|
Tax saved for basic and higher-rate taxpayers by reversing the dividend tax rise |
||||||
|
Dividend level |
£2,000 |
£5,000 |
£10,000 |
£20,000 |
£30,000 |
£50,000 |
|
Tax saved between 2022/23 and 2023/24 |
£0 |
£38 |
£100 |
£225 |
£350 |
£600 |
|
Source: AJ Bell. Calculations assume the full £2,000 dividend tax-free allowance is utilised. |
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