September 7 2021

Boris Johnson Announces 1.25% Rise in Dividend Income Tax and National Insurance Contributions in 2022

Source: IBFD Tax Research Platform News

During his speech in the House of Commons taking place on 7 September 2021, the United Kingdom (UK) Prime Minister, Boris Johnson, announced the country's plan ("Building Back Better") to financially support social care and the UK's National Health Service (NHS), in light of the adverse effects of the ongoing COVID-19 pandemic. The plan consists of the following tax measures:

  • a 1.25% increase in Class 1 (i.e. employee) and Class 4 (i.e. self-employed, including partners) national insurance contributions (NICs), applying to the main and higher rates; and
  • a 1.25% increase in dividend income tax rates.

The aforementioned increases will take effect as from April 2022.

According to an illustrative impact modelling assessment effectuated by the HM Treasury and presented in a policy paper published today, the Building Back Better plan will result in:

  • lower-income households being the large net beneficiaries, with the poorest households gaining the most (as a proportion of income);
  • the 20% highest income households contributing more than 40 times what the 20% lowest income households will have contributed; and
  • over 1/3 of the overall tax increases (and over 1/2 of the increase in dividend income tax rates) coming from the top 10% of the UK households, with the majority coming from the top 20% of UK households.