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  • Writer's pictureNoel Aloko

Dividend tax rate cut for top earners

In line with the decision to abolish the 45% additional tax rate, the government has also cut the dividend tax rate for the highest earners by 6.85%

Effectively this means that the upper rate of dividend tax will be cut by 6.85% from the current 39.35% to 32.5%.

The decision to cancel the rise in national insurance to fund the health and social care levy means that the ordinary and upper rates of dividend tax will be reduced to 2021-22 levels of 7.5% and 32.5% respectively.

In addition, the government will reverse the 1.25% increase in dividend tax rates from April 2023, which was implemented as part of the health and social care levy.

PwC tax partner Alison Hill said: ‘The reversal of the 1.25% increase in the dividend tax rate from 2023, designed to boost the supply side of the economy, will benefit any taxpayer receiving dividends and represents a double boost for any additional rate taxpayers who fall into that category.’

The measure will benefit 2.6 million dividend taxpayers with an average saving of £345 in 2023-24 and additional rate taxpayers will further benefit from the abolition of the additional rate of dividend tax. This is designed to support entrepreneurs and investors across the UK to drive economic growth.

Roan Lavery, CEO of FreeAgent, said: ‘SMEs will feel relieved that the proposed or recent rises in corporation tax, National Insurance contributions and tax on dividends have been cancelled or reversed. That will be a big financial boost to many small businesses and hopefully help them to weather the cost-of-living crisis.’

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