Dividend Tax Net Expands as Allowance Cuts Impact 3.2 Million
UKPulse Money Desk
The number of individuals liable for dividend tax is estimated to have reached 3.2 million in 2025/26, following successive cuts to the dividend tax allowance.
- An estimated 3.2 million individuals were liable for dividend tax in 2025/26, up from 3.14 million in 2024/25.
- The dividend tax allowance was reduced from £2,000 to £1,000 in April 2023, and then to £500 in April 2024.
- Approximately 630,000 individuals began paying dividend tax when the allowance was cut to £1,000, with a further 480,000 affected by the reduction to £500.
The number of people liable for dividend tax is estimated to have reached 3.2 million in the 2025/26 tax year, an increase from 3.14 million in 2024/25. This figure represents an almost doubling since 2020, when 1.81 million individuals were liable.
This expansion of the dividend tax net follows successive reductions to the dividend tax allowance. The allowance was lowered from £2,000 to £1,000 in April 2023, and then halved again to £500 in April 2024.
According to Freedom of Information (FOI) figures obtained by wealth management firm Quilter from HMRC, around 630,000 individuals were brought into paying dividend tax when the allowance was cut to £1,000. A further 480,000 were affected when the allowance was reduced to £500.
Rachael Griffin, a tax and financial planning expert at Quilter, noted that the sharp reduction in the dividend allowance has "quietly pulled hundreds of thousands of people into paying tax on investment income for the first time."
Why this matters: The expansion of the dividend tax net means more individuals are now paying tax on investment income, potentially increasing the tax burden and administrative complexity for investors.
What this means for you: Dividends paid on investments held in stocks and shares ISAs are free from tax and do not use your dividend allowance. You can also consider transferring shares to a spouse or civil partner to utilise their allowances, or explore alternative investments like Venture Capital Trusts (VCTs) if you have the risk appetite and have maximised ISA and pension allowances.