Dividend tax hits record number of investors

The shrinking dividend allowance is expanding who pays tax on share income and raising questions about investment incentives.

Dividend tax hits 3.7 million investors after allowance cut

HMRC data show that 3.7 million people will pay dividend tax in the 2024/25 tax year, a record high. The rise comes despite no change in dividend rates, as the dividend allowance has been cut from £5,000 in 2018 to £2,000, then to £1,000 in 2023 and to £500 in 2024. The shrinking allowance widens the tax net and captures more people with modest portfolios who rely on dividend income.

The policy trend is a shift from changing rates to changing the tax base. Proponents say the changes raise revenue and simplify administration, while critics warn they dampen the appeal of investing for households and retirees. The issue sits in a wider political debate about Britain’s investment environment, with Labour pledging to boost investment and growth while public finances feel the squeeze. For many families, the cut arrives quietly but with a meaningful impact on take-home returns.

The steady narrowing of the dividend allowance over five years reflects a design choice: raise revenue by narrowing who is exempt, not by lifting rates. That makes the policy feel less radical on paper, but its real effect is to widen the tax base without broad tax reliefs, pressuring savers with smaller portfolios.

Politically, the move places Labour between its promise to encourage investment and a budget line aimed at raising funds. The policy tests voters’ tolerance for quiet tax increases that tighten the screws on everyday investors. The question is whether the revenue gains will be seen as worth the potential chill to household savings and to Britain’s share-market confidence.

Highlights

The policy path ahead will show if revenue gains come at the expense of long-term investment.