Budget 2025: Dividend Tax Rates Are Going Up Again – Here’s What It Means for You
03/12/2025
The Chancellor confirmed another increase in dividend tax rates, effective from the new tax year starting April 2026.
The changes in a nutshell:
- Basic-rate taxpayers: dividend tax rises from 8.75% → 10.75%
- Higher and additional-rate taxpayers: rises from 33.75% → 35.75%
The tax-free dividend allowance stays at £500 – a figure that has already been slashed repeatedly and is now worth very little for most investors.
The Treasury expects these changes to raise:
- £280 million in the first year
- £985 million in 2027–28
- At least £1.16 billion a year from 2028–29 onwards
The Bigger Picture
At a time when the Chancellor says she wants to “get Britain investing again” and make the London Stock Exchange more attractive, raising taxes on one of its biggest selling points – reliable dividend income – feels contradictory.
For anyone holding UK shares outside a tax wrapper (ISA or SIPP), the combined effect of a tiny £500 allowance and steadily rising tax rates is making buy-and-hold income strategies much less rewarding.
What Can You Do?
- Maximise your ISA and SIPP allowances – dividends and growth inside these wrappers remain completely tax-free.
- Review your portfolio: are you over-exposed to high-yield UK stocks held in a general account?
- Consider whether overseas markets or growth-oriented shares now offer better after-tax returns.
The message from the Budget is clear: if you rely on dividend income and don’t have room left in tax-free accounts, the next few years are going to be more expensive.
Planning ahead has rarely been more important.
