Are rewards now at risk?

FIVE-MINUTE GUIDE TO... DIVIDEND TAX

- 

FEELING THE SQUEEZE Dividend tax may rise

HERE has been endless speculation about which taxes chancellor Rachel Reeves may increase in the Budget with income, pensions, savings and inheritances all said to be in the line of fire. Now a new and previously overlooked threat has emerged, with suggestions that she could make dividend tax more punitive.

Dividend tax has been tightened twice in recent years, not by Labour but by former Conservative chancellor Jeremy Hunt.

The levy applies to the regular income that companies pay to investors who own their shares. If those shares are held outside a tax-efficient ISA or pension, they may be liable for dividend tax.

Before Hunt's changes, investors could earn £2,000 of dividend income each year before paying any tax.

He halved this to £1,000 in April 2023, then slashed it again to today’s £500. Anyone receiving dividends above that may owe dividend tax, unless their total income falls below the £12,570 personal allowance.