Alongside the 1.25 percentage point increase in National Insurance contributions, the tax on dividend income will also increase by 1.25% to help support the NHS and social care from April 2022.

Company shareholders receiving dividends are taxed on dividend income which exceeds their personal allowance (currently £12,750 per year) and dividend allowance (currently £2,000). Dividends from shares in an ISA are not taxable.

From April 2022, dividend tax rates will apply as follows:

  • Basic rate taxpayers will pay 8.75% tax (currently 7.5%).
  • Higher rate taxpayers will pay 33.75% tax (currently 32.5%).
  • Additional rate taxpayers will pay 39.35% (currently 38.1%).

The government estimates affected basic rate taxpayers will pay an average of £150 more on their dividend income in 2022-23. Affected higher-rate taxpayers are expected to pay, on average, an additional £403.