The taxation of dividends is to be reformed by replacing the existing Dividend Tax Credit with a Dividend Tax Allowance of £5,000 and setting new dividend tax rates applicable from April 2016.

In much the same way as the Personal Savings Allowance announced in the March 2015 Budget, the Dividend Tax Allowance provides tax-free income on the first £5,000 of dividends received each tax year.  Any dividend income received in excess of the allowance will be taxed at the following rates: 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.