Client Update: Possible Changes Ahead for Dividend Taxation
- Foxmain Associates
- Oct 7
- 2 min read
With the next Budget approaching, speculation is growing that the Government may make further changes to the taxation of dividend income. Any adjustments are likely to form part of broader efforts to increase tax revenues and simplify the system.
Current Rules
At present, individuals can receive up to £500 of dividend income each tax year tax-free under the dividend allowance. Dividends above this level are taxed at the following rates:
Tax Band - Dividend Tax Rate
Basic rate - 8.75%
Higher rate - 33.75%
Additional rate - 39.35%
 Dividends that fall within your Personal Allowance (currently £12,570, if available) remain tax-free but do not count towards the £500 dividend allowance.
If your total dividend income is £10,000 or less, you can either:
Ask HMRC to adjust your tax code so that tax is collected through your salary or pension, or
Report the dividends on your self-assessment tax return (if you already complete one).

If your dividend income exceeds £10,000, you must complete a self-assessment tax return. Those not already registered for self-assessment must do so by 5 October following the end of the tax year in which the income was received.
What Might Change
Recent reports suggest that the Government could look to:
Increase the rates of tax on dividend income, and/or
Abolish the £500 dividend allowance altogether.
These measures would represent the continuation of a recent trend. The dividend allowance has been steadily reduced over time—from £5,000 when first introduced in 2016/17, to £2,000, and then to £500 for the 2024/25 tax year.
What This Means for You
Any increase in dividend tax rates or removal of the allowance would affect:
Company directors and owner-managers who extract income through dividends, and
Investors receiving dividends from shareholdings or collective investments.
If changes are announced in the Budget, they could take effect from April 2026 (the start of the next tax year) or potentially sooner.
Next Steps
We will continue to monitor developments closely and provide updates following the Budget announcement. In the meantime, if you would like to discuss how potential changes could impact your personal or business tax position, please contact us on 0117 2440147 or at info@foxmain.com
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