Income Tax on Dividends and the Health and Social Care Levy
Published / Last Updated on 11/02/2022
Many shareholders and owner/manager/director businesses take a large share of their income via dividends i.e., a share of the net profits. Dividend income is not subject to National Insurance Contributions (NIC) and therefore, would miss out on paying the Health and Social Care Levy.
Fact – Dividends are not subject to the new care levy.
Therefore, the Chancellor has increased the rate of income tax on dividends by 1.25% as demonstrated in the table below.
The dividend income tax rates for individuals are summarised as follows:
|
Nil-rate (first £2,000) |
Ordinary rate (where dividends fall within Basic Rate Tax Band 20%) |
Upper rate (where dividends fall within Higher Rate Tax Band 40%) |
Additional Rate (where dividends fall within Additional Rate Tax Band 40%) |
|
|
2021/22 dividend rates |
0% |
7.50% |
32.50% |
38.10% |
|
2022/23 dividend rates |
0% |
8.75% |
33.75% |
39.35% |
As you may know, the NIC increase of 1.25% as a temporary Health and Social Care levy only applies for 1 year (2022/23) and then in 2023/24 NIC rates will be reduced back to 2021/22 NIC Rates. At this point, a new tax: the Health and Social Levy will be a standalone tax, currently set also at 1.25%.
Given the NIC increase of 1.25% in 2022/23 and then change to a separate tax in 2023/24 of 1.25%, we believe dividend taxation rates will remain at the increased 2022/23 rates as it is already a tax for 2023/24 and beyond.
Pensioners who are still working will be caught by the new levy in 2023/24 but all owner/manager directors, shareholders including retired/non-working pensioner shareholders will pay 1.25% more on dividend income from April 2022.
If you receive dividend income, you should contact us for advice on whether to retain shares and dividend income or think about alternative ways of investing.
