Dividend tax rates are being increased by 1.25%. This is intended to be part of social care reforms as part of a plan to help people pay for their care without going through too much of their savings or having to sell their house to be considered eligible for care.
As announced by the government this will be in effect from the 1st of April 2022.
This is coming at a time where small businesses and sole traders are still struggling to recover their losses due to the pandemic. Along with the furlough scheme coming to an end, it is predicted that this tax rate increase will take it's toll.
Basic taxpayers will see their dividend tax rate become 8.75%, for higher rate taxpayers it will be 33.75% and for additional rate taxpayers it now be 39.35%. The current £2,000 dividend allowance will stay the same.
This increase in dividend tax rates will be will be legislated for in the next Finance Bill. The government presently estimates that 70% of the revenue raised will be paid for by higher rate and additional rate taxpayers in 2022-2023.