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Dividend Income Tax Reductions: What Does This Mean for Directors?

by Thomas Nock Martin | Sep 04, 2023 | Tax

Changes to Dividend Taxation Policy in 2023 and 2024

For all investors, it goes without saying that dividends are a welcomed bonus once you have invested in a company’s equity. While investors only see a fraction of profits, this can nurture such partnerships and act as an incentive to continue investing. For all individuals, the first £2,000 earned through dividends is taxed at 0%, but that doesn’t mean it is going to stay that way.

In fact, in the 2023/24 tax year, the dividend allowance will be reduced to £1,000 and then even further reduced to £500 in the 2024/25 tax year. The government has put the dividend taxation policy in place to support public finance in staying within a sustainable path. But, what does this mean for all parties?

Recent Changes to Dividend Taxation

Before this policy was announced in the Autumn, the government had been making changes to how dividend tax was calculated. Income tax rates outside of the allowance had recently been increased to 8.7% for the basic rate, 33.75% for the higher rate and 39.35% for additional rate bands.

Before this, at Summer Budget 2015, the government decided that dividend taxation would be reformed in April 2016. This entailed abolishing the Dividend Tax Credit, and instead, introducing a £5,000 Dividend Allowance with setting rates at 7.5% for basic, 32.5% for upper rate and 38.1% for additional rates.

As you can see, there has been a significant jump over the years, which could be dampening the appeal of investing in start-ups and long-standing businesses further.

What does this mean for you?

If you receive taxable dividend income above the £1,000 mark from the 6th of April 2023 and above £500 from the 6th of April 2024, you will be affected by this adjustment. However, these tax reductions exclude assets held in ISAs, which will continue to stand tax-free. Putting it into perspective, it is estimated that 3,235,000 individuals will feel the hit of these new regulations in the year 2023/24. And 4,405,000 in 2024/25.

While this may not affect family units, stability or breakdown, it may affect the customer experience for those who are new to dividend taxation and are, therefore, unfamiliar with the processes.

Need further guidance?

If you are an investor, a director or a shareholder, get in touch with Thomas Nock Martin for further guidance on what to expect from the new dividend taxation policy. Whether you’d like to discuss the best strategy for extracting profits from your company or you want to ensure your investments are secure, we can give you expert advice to give you complete peace of mind.

From our roots dating back as far as 1905, we continuously make it our priority to keep on top of all taxation policies so that we can give our clients effective advice. Whether you need a reliable chartered accountant to handle your financial affairs as a business or individual, we have the knowledge and expertise to do this effectively and efficiently.

Get in touch with us today via phone at 01384 261300 or email us at


If you found this blog useful, check out a previous one: Interest Rate Inflation: What Does This Mean for the Property Market

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