According to data from HM Revenue and Customs (HMRC), released following a Freedom of Information request by Quilter, an estimated 3.7 million individuals will pay Dividend Tax in the 2024/25 tax year.

The figure is over double the amount of investors and taxpayers paying Dividend Tax during the 2021/22 tax year.

This sharp rise is largely due to a series of reductions in the tax-free dividend allowance, which has pushed a greater number of investors over the taxable threshold.

As the Autumn Budget approaches amidst ongoing economic uncertainty, both taxpayers and investors are feeling increased financial pressure, and this news will not help ease that.

With economic growth slow, a record number of individuals are now expected to be hit with a Dividend Tax bill and the figure is only expected to continue rising.

What’s behind the surge in Dividend Tax bills?

In 2018, the dividend allowance stood at £5,000. Fast forward to 2025, and that figure has been slashed to just £500. The reductions, implemented by both Conservative and Labour governments, has pulled millions more investors and taxpayers into the tax net.

Although the rates of Dividend Tax themselves have not changed, repeated cuts to the tax-free allowance have significantly increased the number of individuals liable to pay.

HMRC figures show that in the 2020/21 tax year, 1.8 million people paid Dividend Tax. That number is set to double in 2024/25, with an estimated 3.7 million expected to be affected.

This trend is likely to continue if the Government proceeds with further cuts, increasing the tax burden on individual investors and savers.

What is the Government expected to collect from Dividend Tax?

The Treasury maintains that the tightening of the dividend allowance is a necessary step to stabilise public finances and fund wider efforts to boost economic growth.

The impact on Government revenues is certainly significant. HMRC is projected to collect over £450 million in Dividend Tax during the 2024/25 tax year, with that figure expected to rise to £810 million by 2025/26 and continue increasing beyond that.

What are repercussions for taxpayers?

Traditionally, Dividend Tax has primarily affected higher-rate taxpayers and wealthy investors. However, more recently, HMRC data suggests that growing numbers of basic rate taxpayers are also being pulled into the Dividend Tax net.

In fact, over 2 million basic rate taxpayers are forecast to pay Dividend Tax during 2024/25. This marks a stark departure from the tax’s original intent and is expected to climb further as allowances continue to be reduced.

With more everyday investors facing additional tax liabilities, disposable incomes are being squeezed, and financial planning is becoming increasingly complex.

This poses a significant challenge to Chancellor Rachel Reeves’ efforts to encourage investment and stimulate growth. Many fear that increased tax pressure could undermine investor confidence at a time when the economy can least afford it.

Understanding your financial position

If you’re concerned about how Dividend Tax or other financial pressures that might affect your finances, speaking to a financial adviser could make all the difference and give much needed peace of mind.

They can help you assess your tax expenditures, navigate the latest HMRC changes, and create a strategy tailored to your personal financial goals and ensure you feel confident in your financial position.

Looking to understand and protect your finances? Speak with us today