The number of individuals paying dividend tax is expected to reach a record 3.67 million in the 2024/25 tax year, following successive cuts to the dividend tax-free allowance.
The figure, obtained by Quilter through a Freedom of Information request to HMRC, is double the number recorded just two years earlier.
The allowance was reduced from £2,000 to £1,000 in April 2023 and halved again to just £500 in April 2024. After remaining broadly flat for several years, the number of dividend taxpayers jumped from 1.9 million in 2022/23 to an estimated 3.08 million in 2023/24 following the changes to policy.
When the reductions were first announced, HMRC estimated that 635,000 individuals would be brought into the dividend tax scope in 2023/24, with 1.115 million affected in 2024/25.
However, updated modelling based on more recent data puts the figures at 865,000 and 480,000 respectively, still amounting to over 1.3 million additional taxpayers across the two years.
The revenue impact is also substantial, says Quilter. The latest projections from HMRC estimates that the cut to £500 last April would raise £450 million in 2024/25, rising to £810 million in 2025/26, £860 million in 2026/27 before reaching £940 million in 2027/28.
Basic rate taxpayers are bearing a large share of the burden. HMRC estimates that in 2024/25, around 2.15 million basic rate individuals had taxable dividend income, with 1.11 million expected to owe dividend tax; many for the first time.
Rachael Griffin, tax and financial planning expert at Quilter, says: “These figures show just how quietly but effectively the tax net is expanding. What was once a niche tax affecting a relatively small group of higher earners and business owners is now impacting millions of everyday investors, many of whom are basic rate taxpayers.
“The Government has made clear that it expects to raise hundreds of millions in additional revenue from these changes, and the figures show it is well on track to do so. But the cost isn’t just financial, the complexity of compliance is growing, particularly for those unfamiliar with the tax system. This policy seems at odds with Labour’s desire to get more people investing.”
Griffin said that as interest rates start to fall and the appeal of cash wanes, more people will look to investing as a way to grow their money but warned the tax environment is becoming harder to navigate.
“Making full use of ISAs, pensions and other tax-efficient wrappers has never been more important, especially for those supplementing their income or planning to pass on wealth to the next generation,” she added.
