1.8m investors to pay tax as income threshold is cut

ALMOST two million more people will be forced to pay tax on their dividend income in the next two years after the Government’s new tax thresholds come into force next week.

From April 6, the amount of tax-free dividend income you can take from owning shares in a company will be reduced from £2,000 to £1,000. Beyond this amount, savers will be liable to pay dividend tax.

An estimated 1.8 million people will find themselves paying this tax in the next two years, according to official figures released by HM revenue & Customs (HMrC) under a Freedom of Information request from the online investment platform AJ Bell.

In the next tax year, 635,000 more people will be hit with a tax bill.

The dividends threshold is set to halve again in 2024, allowing investors to make just £500 before needing to pay tax. This will affect more than 1.1 million taxpayers for the first time.

In total, HMrC estimates that 4.4 million people will be impacted by the dividend allowance cut in 2024/25, as they are forced to pay dividend tax for the first time or will see their tax bill increase.

Around 54 pc of people with taxable dividend income will be affected by the new thresholds in the next tax year, but this will rise to 73 pc by 2024/25, according to HMrC.

It forecasts that investors will pay an average of £125 a year in dividends tax in the next tax year, which will rise to £155 by 2025.

The changes will be felt most by people with modest investments and small business owners, who often pay themselves in dividends, says Laith Khalaf, head of investment analysis at AJ Bell.

He says: ‘Small shareholders and business owners are now going to be exposed to dividend tax on very modest amounts of income by the forthcoming cuts to the dividend allowance.’