The change will come into impact on April 6.
HMRC warning for Brits going through new tax hike in days – ‘costing additional £390’ (Picture: Getty) This text incorporates affiliate hyperlinks, we are going to obtain a fee on any gross sales we generate from it. Be taught extra
Hundreds of thousands of Britons are going through a contemporary tax hit inside days as new dividend tax charges come into drive, with some set to pay a whole bunch of kilos extra every year. From April 6, 2026, dividend tax charges for fundamental and better price taxpayers will rise by two proportion factors, leaving traders and enterprise house owners with increased payments on revenue earned outdoors ISAs and pensions. The essential price will enhance to 10.75% and the upper price to 35.75%, whereas the extra price stays unchanged at 39.35%.
Evaluation from funding platform AJ Bell suggests taxpayers may face an additional invoice of round £390 on £20,000 price of dividends in comparison with this tax yr. Charlene Younger, pensions and financial savings professional at AJ Bell, mentioned: “From April 6, 2026, fundamental and better price taxpayers face an additional tax invoice of £390 on £20,000 price of dividends in comparison with this yr.”
Hundreds of thousands of Brits will likely be hit by a brand new tax hike (Picture: Getty)
The modifications are the most recent in an extended line of changes to dividend tax, with charges and allowances tightened repeatedly over the previous decade. On the similar time, the tax-free dividend allowance has been slashed from £2,000 in 2023 to simply £500 immediately.
This mix has dragged hundreds of thousands extra individuals into paying the tax. Figures from HMRC present round 3.7 million individuals are anticipated to pay dividend tax this yr, greater than double the quantity in 2021/22. The newest rise is anticipated to generate an additional £280 million within the subsequent tax yr, climbing to almost £1.4 billion yearly by the tip of the last decade.
Earlier than 2016, many fundamental price taxpayers paid no dividend tax in any respect because of a tax credit score system. Now even comparatively modest traders face rising payments.
“To place it in context, a fundamental price taxpayer with £10,000 of dividends a yr would have paid no tax in 2015,” Ms Younger mentioned. “From 6 April they’ll be handing over £1,021 in tax on that revenue.”
Increased price taxpayers have seen a good sharper enhance, with their efficient price rising considerably over the identical interval.
The modifications may also hit firm administrators who depend on dividends to attract revenue from their companies.
3.7 million individuals are anticipated to pay dividend tax this yr (Picture: Getty)
Specialists say rising dividend tax makes various methods, resembling pension contributions via an organization, extra engaging as a result of they’ll scale back company tax and keep away from revenue tax and Nationwide Insurance coverage.
In a single instance, a higher-rate taxpayer who contributes £30,000 right into a pension reasonably than taking it as dividends may save greater than £15,000 in tax.
There are nonetheless methods to cut back the affect, significantly by utilizing tax-efficient accounts. The annual ISA allowance presently stands at £20,000, permitting people to protect investments from tax, whereas {couples} can successfully double that. Pensions additionally provide upfront tax reduction, though funds are usually locked away till later in life.
Ms Younger mentioned profiting from these allowances is more and more necessary as dividend tax continues to evolve.
She mentioned: “The annual ISA allowance is presently £20,000, so you possibly can probably transfer £40,000 into your ISA earlier than the most recent tax hike begins to chunk by utilizing this yr’s allowance now and subsequent yr’s as quickly as the brand new tax yr begins in April. You are able to do this utilizing a transaction known as ‘Mattress and ISA.’
“When you have a partner who additionally hasn’t used their ISA allowance this yr and doesn’t have their very own investments outdoors an ISA, you possibly can double this allowance and shift your portfolio away from tax extra quickly.”
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Nonetheless, she identified: “It’s necessary to regulate any capital positive aspects you’ve got saved up. Transferring investments into ISAs may imply you crystallise these positive aspects, utilizing up your remaining capital positive aspects tax-free allowance.
“You’ll be able to switch funding to your partner on a ‘no acquire, no loss’ foundation earlier than they’re then offered to fund ISAs for the yr and this may use your partner’s personal capital positive aspects allowance.”
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