From 6 April 2018, the tax-free allowance on dividends will be reduced from £5,000 to £2,000.
Owner-directors have used the dividend allowance to extract profits from their business, but changes over recent years have seen the advantage of this tax-efficient strategy reduce.
The reduction will almost certainly result in business owners, directors and shareholders paying more tax on dividends worth more than £2,000 in 2018/19.
Under the new allowance, the first £2,000 taken in dividends will be tax-free, but anything above it will be taxed according to the taxpayer’s income tax band. Although the allowance is set to change, tax on dividends will remain at the same rates for 2018/19.
For dividend-only income, the following rates apply:
| ANNUAL SLICE OF INCOME | TAX RATE |
|---|---|
| Up to £11,850 | nil |
| £11,851 – £13,850 | 0% |
| £13,851 – £46,350 | 7.5% |
| £46,351 – £150,000 | 32.5% |
| More than £150,000 | 38.1% |
You might be interested in...
16 Sep 2026
Financial planning is about more than investments. Learn how business owners and professionals can gain clarity, build confidence and make better decisions about their future.
Watch now
Beyond the Books, Episode 9
11 Sep 2026
Many businesses dismiss their innovation as "just part of the day job". But for tax purposes, innovation often hides in everyday problem-solving and technical improvements. Discover what really qualifies as R&D.
Learn more
What really counts as innovation for tax purposes?
11 Sep 2026
Could your business operate without you? Join our webinar in October to learn how to reduce owner dependence, strengthen leadership and build long-term business resilience.
Learn more
Webinar: Building a Business That Doesn’t Depend on You
02 Sep 2026
For international groups, uncertainty around audit requirements can create unnecessary pressure, duplicated work and reporting delays. This article explains the difference between UK statutory audits and group reporting.
Learn more
UK statutory audit vs group reporting: what international groups need to know
01 Sep 2026
Why resilient SME leaders are turning to scenario planning to stay agile, reduce risk and make decisions with confidence.
Learn more
The New Business Strategy Isn’t One Plan – It’s Multiple Futures
26 Aug 2026
From 30 Sept 2026, the charity audit threshold rises to £1.5m. Learn what this means for your charity and whether you still need an audit.
Learn more
Charity audit thresholds are increasing: should your charity still have an audit?