HMRC tax shock alert as millions to be hit by 'surprise' bill

Millions of Brits could be hit with a tax on the rewards from their savings and shares this year, with many not aware of the change until a letter from HMRC arrives. Tax rules allow for a certain allowance for everyone for the amount they can receive from dividends each year with having to pay a share to HMRC.

But the allowances have been shrinking, from £2,000 tax free in 2021/2022, to just £500 now for the year 2024/2025. People pay tax on any dividend income above the dividend allowance. Those with shares in an ISA do not pay tax on any dividend. Now new HMRC figures show the number of people paying the tax reached a record 3.67million in the 2024/25 tax year, almost double the number from just two years ago. And there's even talk of Rachel Reeves scrapping the existing £500 allowance completely.

Rachael Griffin, tax and financial planning expert at Quilter, told GB News: "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."

GB News reports the figures, obtained by Quilter through a Freedom of Information request, reveal how cuts to the dividend tax-free allowance have dramatically widened the tax net. The allowance was reduced from £2,000 to £1,000 in April 2023 and then halved again to £500 in April 2024.

After remaining broadly flat for several years, the number of dividend taxpayers rose from 1.9million in 2022/23 to an estimated 3.08million in 2023/24.

It is now projected to jump again to 3.665million in 2024/25, the latest year for which HMRC has modelled figures. When the reductions were first announced, HMRC estimated that 635,000 people would be brought into paying dividend tax in 2023/24, with a further 1.115million affected in 2024/25.

Updated modelling puts the figures at 865,000 and 480,000 respectively, still totalling more than 1.3million additional taxpayers across the two years.

Speaking to GB News, Ms Griffin added: "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."