The number of people paying dividend tax is expected to reach a record 3.67m in the 2024/25 tax year.

The HMRC figure has been revealed through a new FOI request by wealth manager Quilter.

The figure is almost double the number recorded just two years earlier, following successive cuts to the dividend tax-free allowance.

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

HMRC’s data shows the policy has dramatically widened the scope of the tax. After remaining broadly flat for several years, the number of dividend taxpayers rose from 1.9m in 2022/23 to an estimated 3.08m in 2023/24, and then jumped again to a projected 3.665m in 2024/25, the latest year for which HMRC has modelled figures.

Source: HMRC/Quilter

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 1.115m affected in 2024/25. However, updated modelling based on more recent income data puts the figures at 865,000 and 480,000 respectively.

The revenue impact is also substantial, said Quilter. The cut to £500 in April 2024 was 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.

Basic rate taxpayers are bearing a large share of the burden. HMRC estimates that in 2024/25, around 2.15m basic rate individuals had taxable dividend income, with 1.11m expected to owe dividend tax, many for the first time.

Rachael Griffin, tax and Financial Planning expert at Quilter, said: “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.

“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. 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.”