The number of individuals paying dividend tax is expected to reach a record 3.67 million in the 2024/25 tax year, according to new analysis by Quilter.

The wealth manager obtained new HMRC figures through a Freedom of Information request to reveal that the latest figure is almost double the number recorded just two years ago, following successive cuts by the Government to the dividend tax-free allowance.

The allowance was reduced from £2,000 to £1,000 in April 2023 and halved again to £500 in April 2024.

HMRC’s data has shown that this policy has dramatically widened the scope of the tax. 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, before jumping again to a projected 3.67 million in 2024/25, the latest year for which HMRC has modelled figures.

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 1.12 million affected in 2024/25. However, updated modelling based on more recent income data has placed the figures at 865,000 and 480,000, respectively, still amounting to over 1.3 million additional taxpayers across the two years.

Tax and financial planning expert at Quilter, Rachael Griffin, commented: “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.

“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.”

Quilter also said that the revenue impact from changes could be “substantial”.

The cut in the allowance to £500 in April 2024 is forecast to raise £450m in 2024/25, rising to £810m in 2025/26, £860m in 2026/27, and £940m in 2027/28, according to HMRC’s latest projections.

“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,” added Griffin.

“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.

“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.”

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