Rise in dividend tax rates for limited company shareholders imminent

21 Feb 2022

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As part of a package of measures to fund the NHS and health and social care, the rate of taxation on dividend income will increase from 6 April 2022.

The basic, higher and additional rates of tax on dividend income are currently 7.5%, 32.5% and 38.1%, respectively. From 6 April, these rates will increase by 1.25% to 8.75% 33.75% and 39.35%, respectively.

An individual with dividend income will continue to benefit from the dividend allowance, which has been £2,000 per annum since April 2018. Dividend income up to the limit of this allowance each year is tax-free.

These dividend tax rate increases are in addition to the equivalent 1.25% increase to the rates of National Insurance contributions (NICs), being the new Health and Social Care Levy, and also taking effect from 6 April 2022.

Martyn Dobinson, partner, and a member of the firm’s Land and Rural Practice Group says:

“The dividend tax rates have remained steady since 2016, but these changes were announced in the Autumn Budget last year. Whilst designed to increase the overall tax take and go towards funding health and social care and the NHS, the measures are also designed to limit the incentive for individuals to set up a company and remunerate themselves via dividends, rather than through wages, as a means of reducing their tax bill. For those farming and rural business directors and owners considering paying a dividend from their company, they may wish to consider declaring those dividends prior to the tax increases taking effect in April.”

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