The Prime Minister has announced a 1.25% increase to dividend tax rates from April 2022 as part of a package of measures to fund the costs of social care and the NHS over the next 3 years.
It is estimated that the tax hike will raise about £600 million of additional revenue for the Government.
Combined with the matching rise in National Insurance contributions, the move is expected to deal the hardest blow to contractors, sole traders, and company directors who draw dividends as income from their businesses.
In addition, up to one million retirees, over the age of 66 still in some form of employment, will have to pay NI contributions on their earned income for the first time.
For anyone taking home more in dividends than the £2,000 taxable allowance, the rates will rise to 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers.
However, income within a stocks and shares ISA will still remain tax-free, so shareholders who take full advantage of their allowances will continue to enjoy those benefits.
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