Nearly four million people are expected to pay dividend tax this year, with one in five higher-rate taxpayers affected as the tax-free allowance shrinks.
Less than a decade ago, individuals could earn up to £5,000 in dividends tax-free. That allowance has been cut repeatedly, to £1,000 in April 2023 and £500 in April 2024, dragging more taxpayers into the net. The number of people paying dividend tax has more than doubled since 2021/22, from 1.83 million to an estimated 3.7m in 2025/26.
Small company directors, investors and even shareholders with modest holdings are among those hit hardest. HMRC expects to collect £18.6 billion in dividend tax in 2025/26, up from £17.6bn in 2022/23 and £14.7bn in 2021/22.
Higher rate taxpayers will face an average bill of £6,202 each, with 1.24m people affected. Additional rate taxpayers, around 340,000 individuals, are set to pay an average of £28,879. Basic rate taxpayers breaching the £500 threshold will have far smaller liabilities, averaging £382 this year, down from £780 three years ago, but they may still need to file a tax return.
While the average bill has fallen due to more people being taxed on small dividend incomes, the total tax take has grown sharply. The Treasury estimates the cut to the £500 allowance will raise an extra £810m in 2025/26, increasing to £860m in 2026/27.
HMRC data shows that higher-income individuals are far more likely to have other taxable incomes alongside dividends.
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