Dividend tax cut to save investors £345 a year

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New Chancellor Kwasi Kwarteng announces a reversal of Rishi Sunak’s dividend tax hike in tomorrow’s mini-budget, saving investors and some self-employed workers an average of £345 next year.

It comes as an increase in National Insurance rates has also been scrapped just months after former Chancellor Mr Sunak brought it in to raise additional funds for social care and the NHS.

Both the NI and the dividend tax were increased by 1.25 percentage points in April 2022 to ensure that employees did not evade the NI increase by paying themselves through dividends instead.

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The Treasury said the reversal of the rise signaled “support for entrepreneurs and investors as part of the government’s drive to grow the economy and improve living standards for families in the UK”.

The government said funding for health and social care will be kept at the same level as if the tax cut had not happened. The now abolished tax is expected to generate £13 billion a year.

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Anyone can earn £2,000 a year without paying dividend tax. Dividends above that threshold are taxed at different rates based on the person’s highest income tax rate.

Currently, base rate payers pay 8.75 per cent on dividends, higher payers pay 33.75 per cent and top payers – those who earn more than £150,000 a year – pay 39.35 per cent withholding tax.

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All of these rates will fall by 1.25 percentage points from April 2023, so investors and employees won’t see any benefit until the 2023-2024 tax year.

The NI discount will take effect from November, putting the money back into people’s pockets immediately.

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