A brand new tax yr means more cash misplaced
Rachel Reeves made the change at November’s Funds (Picture: Wiktor Szymanowicz/Future Publishing through Getty Photographs)
Tax specialists are drawing consideration to alterations taking impact subsequent week that can impression these holding investments. Tax charges on dividend revenue exceeding the annual allowance of £500 will climb by two p.c for primary and better charge taxpayers on investments held outdoors of a tax-free surroundings.
Revealed by Chancellor Rachel Reeves ultimately November’s Funds, the unusual charge payable to HMRC will bounce from 8.75 p.c to 10.75 per cent and the higher charge from 33.75 p.c to 35.75 p.c from April 6, 2026, which signifies the start of the brand new tax yr. The extra charge will keep unaltered at 39.35 p.c. These modifications are anticipated to generate £280 million in contemporary tax receipts within the forthcoming tax yr (2026-27) for HM Treasury, based on specialists at J.P. Morgan.
J.P. Morgan outlined how circumstances had reworked over the earlier decade. It said that, following the substitute of the notional tax credit score system in 2016, the UK had slashed the tax-free annual dividend allowance by 90 p.c, from £5,000 per tax yr to £500, dragging extra buyers and enterprise homeowners into paying dividend taxes.
From the preliminary allowance of £5,000, the allowance has been diminished thrice to £2,000 in 2016, then £1,000 in 2023, and to its current stage of £500 in April 2024. Concurrently, dividend tax charges have progressively elevated.
In 2016-17, primary charge taxpayers confronted a levy of seven.5 p.c on dividend revenue exceeding the allowance, whereas larger and extra charge taxpayers can be charged 32.5 p.c and 38.1 p.c, respectively. This climbed by 1.25 p.c throughout all bands within the 2022-23 tax yr and can surge by two per cent for primary and better charge taxpayers within the forthcoming tax yr.
Influence on buyers
For a primary charge taxpayer producing £10,000 in dividends outdoors their tax-free funding wrappers, they’d have witnessed an virtually threefold rise in tax paid on this revenue over the previous decade, JP Morgan stated. In 2016–17, a primary‐charge taxpayer incomes £10,000 in dividends outdoors tax‐free wrappers would have paid £375 on this revenue. This has climbed to £831.25 within the present tax yr (2025-26) and can bounce to £1,021.25 from April 6, 2026.
Analysis from J.P. Morgan Private Investing found that greater than 4 in 10 (44%) UK buyers said that dividend tax modifications within the forthcoming tax yr (2026-27) will have an effect on their funding portfolios. This apprehension escalates to 59% amongst these holding over £250,000 in investible property.
Charlotte Wheeler, wealth supervisor and chartered monetary planner at J.P. Morgan Private Investing, stated: “Over the past decade, dividend tax modifications have been a preferred device to boost new tax receipts, dragging extra buyers into paying tax on their investments. It’s because the tax-free allowance for dividend revenue has dropped whereas tax charges have incrementally elevated over time.
“For buyers, it is necessary to not overlook dividend tax guidelines when constructing wealth as this could dampen returns in an funding portfolio targeted on revenue technology if not managed properly. For these with investments held outdoors tax-efficient wrappers, it is price paying shut consideration to the brand new dividend tax charges coming into drive from the brand new tax yr as these modifications will impression those that have revenue investments above the present allowance of £500. Whereas our knowledge exhibits that these with bigger funding portfolios might be most impacted, there’s a broader impression for buyers because the clock ticks right down to the brand new tax yr.
One group is about to be hardest hit (Picture: Tatjana Aleksejeva through Getty Photographs)
“New retirees who’ve taken a tax‐free pension lump sum might have much less flexibility to treatment this as they could wish to contemplate prioritising their ISA for progress investments wanted additional down the road. There’s a trade-off as long-term investments which obtain respectable returns might be accountable for Capital Features Taxes (CGT) if held outdoors an ISA. Some buyers should weigh up whether or not they wish to sacrifice returns from dividends and as a substitute deal with defending their growth-focused investments from CGT.
“The Capital Features tax-free allowance is £3,000, however the charge of tax above the brink is eighteen p.c for primary charge taxpayers and 24 p.c for these within the larger and extra revenue tax bands. Within the brief time period, some could also be contemplating shifting income-generating investments into their ISA when their annual allowance refreshes on April 6.
“A Shares and Shares ISA is tax-efficient as you do not pay tax on withdrawals, dividends, or any returns that the investments inside the ISA make. It is necessary to contemplate your monetary targets and the way you might be utilizing the yield out of your investments. For instance, if any dividends are being distributed on to your checking account, it is price being conscious of any financial savings curiosity earned and whether or not this places you above the non-public financial savings allowance.”
Mattress and ISA technique
Charlotte stated: “The ‘Mattress and ISA’ method has advanced through the years and develop into a typical transfer by buyers who wish to carry their investments right into a tax-free funding wrapper. The method works by promoting the investments outdoors of a tax-free wrapper after which shifting the funds into an ISA or pension, which profit from CGT-free returns. Some will do that firstly of the tax yr when their annual allowances refresh.
“For buyers, this method could be enticing because the motion of funds right into a tax-free funding wrapper reduces the potential tax liabilities from Capital Features or dividend taxes later down the road, although this course of is not all the time straightforward. As an illustration, it is price being conscious of market volatility impacting the worth of your investments if you attempt to promote after which purchase again into the market once more inside the tax-free wrapper.
The newest politics information – straight from our workforce in Westminster and extra Subscribe Invalid e-mail
We use your sign-up to offer content material in methods you have consented to and to enhance our understanding of you. This will likely embody adverts from us and third events based mostly on our understanding. You’ll be able to unsubscribe at any time. Learn our Privateness Coverage
“Moreover, buyers ought to familiarise themselves with the thresholds for the CGT allowance if they’re promoting the investments at a revenue earlier than shifting them into an ISA or pension. If you’re not sure concerning the ‘mattress and ISA’ method, it is price talking to an skilled so that you could be certain you make the fitting resolution based mostly in your circumstances.”
J.P. Morgan’s analysis was based mostly on an Opinium survey of 1,000 UK buyers undertaken from December 3 to 10, 2025. Opinium Analysis is a member of the British Polling Council and abides by its guidelines.
Leave a Reply