Dividend tax is the unpopular income tax that came into effect in April 2016. Before then tax wasn’t paid on dividends unless you were in the Higher Rate tax bracket. Now Basic Rate taxpayers have had to pay 7.5 pence on every £1 received as dividends – and Higher Rate taxpayers pay 32.5p on every £1 of dividends. If you live abroad and are non-resident you don’t pay this tax, and institutions don’t pay this tax either – but owner managers of small companies have to pay it and it affects them most of all.