There is a dividend tax-free allowance on top of the £12,570 personal allowance, so the first £2,000 of dividend income you receive is tax-free.
The Government said the move would raise £600m in extra revenue, to contribute to funding social care in the UK, the financing of which will change from October 2023.
These changes affect 3 groups of tax-payers.
Employees will likely see their monthly take-home pay reduced by the 1.25% increase in employee’s NIC.
Employers will pay an additional 1.25% of employer’s NIC for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22).
Business Owners running Limited Companies will pay an additional 1.25% of tax on any dividends they take over and above the £2,000 tax free amount.
There is still time before these changes come into effect, so if you have excess reserves in your company it may be worthwhile voting additional dividends in this current year to ‘bank’ the lower tax rates.