11 August 2025
New HMRC figures obtained by Quilter through a Freedom of Information request reveal the full extent of the dividend tax squeeze facing investors, with the number of individuals paying dividend tax expected to reach a record 3.67 million in the 2024/25 tax year.
That figure is almost double the number recorded just two years earlier, following successive cuts to the dividend tax-free allowance.
The allowance was reduced from £2,000 to £1,000 in April 2023 and halved again to just £500 in April 2024. HMRC’s data shows this policy has dramatically widened the scope of the tax. After remaining broadly flat for several years, the number of dividend taxpayers rose from 1.9 million in 2022/23 to an estimated 3.08 million in 2023/24, and then jumped again to a projected 3.665 million in 2024/25, the latest year for which HMRC has modelled figures.
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Tax year
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Number of individuals paying dividend tax
|
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2020/21
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1,810,000
|
|
2021/22
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1,830,000
|
|
2022/23
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1,900,000
|
|
2023/24 (est)
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3,080,000
|
|
2024/25 (est)
|
3,665,000
|
When the reductions were first announced, HMRC estimated that 635,000 individuals would be brought into the dividend tax net in 2023/24, with a further 1.115 million affected in 2024/25. However, updated modelling based on more recent income data puts the figures at 865,000 and 480,000 respectively, still amounting to over 1.3 million additional taxpayers across the two years.
The revenue impact is also substantial. The cut to £500 in April 2024 was forecast to raise £450 million in 2024/25, rising to £810 million in 2025/26, £860 million in 2026/27, and £940 million in 2027/28, according to HMRC’s latest projections.
Basic rate taxpayers are bearing a large share of the burden. HMRC estimates that in 2024/25, around 2.15 million basic rate individuals had taxable dividend income, with 1.11 million expected to owe dividend tax - many for the first time. While the amounts owed by individual investors may be modest, this represents a significant expansion of the taxpayer base and a growing compliance burden.
HMRC confirmed that many of those affected will not need to register for self-assessment, as tax can often be collected through PAYE or simple assessment.
However, it acknowledged that some individuals may still need to file a return to settle their liability. It also confirmed that it cannot quantify how many additional self-assessment returns have resulted from the policy.
Rachael Griffin, tax and financial planning expert at Quilter, comments:
“These figures show just how quietly but effectively the tax net is expanding. What was once a niche tax affecting a relatively small group of higher earners and business owners is now impacting millions of everyday investors, many of whom are basic rate taxpayers.
“More than 1.1 million basic rate individuals were expected to owe dividend tax in 2024/25. For many, this will have come as a surprise, especially if they hold only modest investments outside ISAs or pensions.
“The Government has made clear that it expects to raise hundreds of millions in additional revenue from these changes, and the figures show it is well on track to do so. But the cost isn’t just financial, the complexity of compliance is growing, particularly for those unfamiliar with the tax system. This policy seems at odds with Labour’s desire to get more people investing.
“As interest rates start to fall and the appeal of cash wanes, more people will look to investing as a way to grow their money. But the tax environment is becoming harder to navigate. Making full use of ISAs, pensions and other tax-efficient wrappers has never been more important, especially for those supplementing their income or planning to pass on wealth to the next generation. Seeking financial advice if you are unsure is critical.”
