The dividend tax allowance cut was predicted by experts last week, and it will fall again to £500 in 2024, the Chancellor of the Exchequer Jeremy Hunt, said in today’s Autumn Statement.

The dividend allowance was set at £2,000 for the 2022 to 2023 tax year. It has been at £2,000 for the last five years. Before this it was at £5,000. 

The allowance is an extra tax-break on top of the personal allowance of £12,500 which everyone gets. It applies to funds or shares that are held outside of a pension or an ISA.

The announcement comes as inflation hit 11.1% in October, a 41-month high, and the UK is in the middle of a cost-of-living crisis. 

‘A stark reminder of the value of ISAs’

Susannah Streeter, senior investment and markets analyst for Hargreaves Lansdown, said: “Investors who hold money in funds or shares outside a pension or an ISA will face paying more on any income, and people who have diligently invested over the long term to build their financial resilience will no doubt feel unfairly swiped by this grab from the rewards of their efforts.

“This rise is a stark reminder of the value of ISAs in protecting you from ever having to consider dividend tax, so anyone who hasn’t exploited their ISA allowance to protect these investments should consider it as a priority.

“For business owners who pay themselves in dividends, this is yet another blow at a time when they’re wrestling with existential threats to their businesses – from runaway energy bills to rising prices and wage bills.”