Dividend tax increases

03 Nov 2021

As part of the funding plan for health and social care, dividend tax rates are similarly increased by 1.25% from 6 April 2022.

Anyone who operates their business through a personal or family company and extracts profits in the form of a small salary plus dividends will typically pay little or no National Insurance. As the Health and Social Care Levy is linked to National Insurance contributions, where this low salary strategy is adopted, they will either not pay the levy or pay it at a lower rate. To address this and to ensure those operating through a personal or family company contribute towards health and social care costs, dividend tax rates are increased by the amount of the levy.

From 6 April 2022, the ordinary dividend tax rate will be 8.75% (currently 7.5%), the upper dividend tax rate will be 33.75% (currently 32.5%) and the higher dividend tax rate will be 39.35% (currently 38.1%).

The increase in the dividend tax rates will also impact on your profit extraction strategy. As the increase does not come into effect until 6 April 2022, it may be useful to review your dividend policy for 2021/22 to decide whether it is worth taking more dividends in 2021/22 to take advantage of the current, lower, rates. Whether this is beneficial will depend on your personal circumstances. We can help you decide.

The increases in the dividend tax rates will also affect you if you receive dividends from investments in shares.