From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your Dividend income. You will, however, pay tax on any dividend income you receive over £5,000 at the following rates:

•7.5% on dividend income within the basic rate Income Tax band
•32.5% on dividend income within the higher rate Income Tax band
•38.1% on dividend income within the additional rate Income Tax band

From April 2018 the Dividend Allowance will be reduced to £2,000.