Dividend Allowance Drops to £500
The tax-free dividend allowance has been reduced to just £500 for the 2024/25 tax year. This is a significant reduction from the £2,000 allowance that was available until recently.
Allowance History
| Tax Year | Dividend Allowance |
|---|---|
| 2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 | £500 |
Dividend Tax Rates
Once you've used your £500 allowance, dividend income is taxed at:
| Tax Band | Dividend Rate |
|---|---|
| Basic Rate | 8.75% |
| Higher Rate | 33.75% |
| Additional Rate | 39.35% |
Who Is Affected?
- Company directors taking salary plus dividends
- Investors with dividend-paying shares
- Landlords with property held in companies
- Anyone with investment portfolios outside ISAs
Example: Director with £10,000 Dividends
On £10,000 of dividends (as a higher rate taxpayer):
- Tax-free: £500
- Taxable: £9,500 at 33.75% = £3,206.25 tax
Compare to 2022/23 when the first £2,000 was tax-free:
- Tax-free: £2,000
- Taxable: £8,000 at 33.75% = £2,700 tax
Additional tax due to allowance reduction: £506.25
Mitigation Strategies
- Use ISA allowance - Dividends in ISAs are completely tax-free
- Consider pension contributions - Reduce overall tax burden
- Spousal planning - Ensure both partners use their allowance
- Timing of dividends - Spread across tax years if possible
Calculate Your Dividend Tax
Use our Dividend Tax Calculator to work out exactly how much tax you'll owe on your dividend income.