Dividend tax changes for 2023 and 2024
Posted on: December 19th 2022 · read
The Chancellor has recently announced that the dividend allowance will be reduced to £1,000 from 6 April 2023 and then to £500 from 6 April 2024.
How will this change affect me?
Individuals will be liable to an increased tax charge on their marginal dividend tax rate, which is currently 7.5%, 32.5% and 38.1% for basic, higher and additional rate taxpayers respectively, of the loss in tax-free allowance.
Along with the additional tax charge, a further implication of the announcement is that individuals who were in receipt of dividend income of less than £2,000, but more than £1,000 or £500 from April 2024, will be brought within the self-assessment regime because of the reduced tax-free allowance.
Do I need to notify HMRC?
If this applies to you, you will be required to notify HM Revenue & Customs (HMRC) by 5 October, following the tax year end in which your dividend income was in excess of £1,000 and £500 for the year after. Failure to notify HMRC can result in penalties for such individuals.
Will I need to set up a self-assessment tax return?
Once you have notified HMRC of your self-assessment position, a self-assessment tax return will need to be submitted by 31 October – following the tax year end in which the dividend income was received – or 31 January, if the submission is made electronically. If you are liable to income tax, this too will need to be paid on 31 January.
Again, failure to both file the tax return and pay any outstanding tax will mean that HMRC is within their right to charge penalties.
How can we help?
If you are concerned about the changes to the dividend tax legislation and how this may affect your tax or you may be one of those individuals who will be brought within the self-assessment regime and would like assistance in notifying HMRC and submitting the return, a colleague in our private client team will be available to answer any questions.