The wealth management firm has used a Freedom of Information request to obtain the data from the UK's tax authority, showing the extent of the increase in the dividend tax net.

UK wealth management group Quilter says official data shows that as a result of the “dividend tax squeeze” on investors an unprecedented 3.67 million people paid this tax in the 2024/25 financial year. That figure almost doubled on two years before.

Quilter said it obtained the figures via a Freedom of Information request from HM Revenue & Customs.

The rise in the number of people paying the tax follows a run of cuts to the dividend tax-free allowance, Quilter said. 

“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,” Rachael Griffin, tax and financial planning expert at Quilter, said.

Such data comes out at a time when there is much speculation on what UK Chancellor of the Exchequer Rachel Reeves might do plug a large public deficit. Reeves is due to deliver a budget statement in the autumn. While the specifics of this dividend tax story appear to be most relevant for the retail investment market, those up the wealth spectrum continue to be in the frame for potentially higher levies.

The dividend tax-free allowance was cut under the previous Conservative government to £1,000 ($1,341) from £2,000 in April 2023 and halved again to £500 in 2024.

The dividend tax rates are 8.75 per cent for basic rate taxpayers, 33.75 per cent for higher rate taxpayers, and 39.35 per cent for additional rate taxpayers.

After remaining broadly flat for several years, the number of dividend taxpayers rose from 1.9 million in 2022/23 to an estimated 3.08 million in 2023/24 and then jumped again to a projected 3.665 million in 2024/25, the latest year for which HMRC has modelled figures, Quilter said. 

“When the reductions were first announced, HMRC estimated that 635,000 individuals would be brought into the dividend tax net in 2023/24, with a further 1.115 million affected in 2024/25. However, updated modelling based on more recent income data puts the figures at 865,000 and 480,000 respectively, still amounting to over 1.3 million additional taxpayers across the two years,” the firm continued. 

Quilter said basic rate taxpayers are bearing a large share of the burden. HMRC estimates that in 2024/25, around 2.15 million basic rate individuals had taxable dividend income, with 1.11 million expected to owe dividend tax – many for the first time. While the amounts owed by individual investors may be modest, this represents a significant expansion of the taxpayer base and a growing compliance burden.

“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,” Griffin said. 

“The government has made clear that it expects to raise hundreds of millions in additional revenue from these changes, and the figures show it is well on track to do so. But the cost isn’t just financial, the complexity of compliance is growing, particularly for those unfamiliar with the tax system. This policy seems at odds with Labour’s desire to get more people investing,” Griffin added.

“As interest rates start to fall and the appeal of cash wanes, more people will look to investing as a way to grow their money. But the tax environment is becoming harder to navigate. Making full use of ISAs, pensions and other tax-efficient wrappers has never been more important, especially for those supplementing their income or planning to pass on wealth to the next generation. Seeking financial advice if you are unsure is critical,” Griffin added.

This news service has contacted a number of financial advisors and wealth firms for their views on the matter, and may update in due course. Please contact tom.burroughes@wealthbriefing.com if you have questions and views on this and related topics.