The slashing of Capital Gains Tax allowances at the same time will put a further squeeze on taxpayers, the firm warned.

AJ Bell submitted a Freedom of Information request to HMRC to learn more about the impact of upcoming changes to dividend tax and CGT allowances.

The company says an estimated 1.8m more people will face paying dividend tax in the coming tax year when the tax free allowance is cut from £2,000 to £1,000, with more caught the following year when the allowance is cut to just £500.

At the same time the Capital Gains tax annual exemption allowance of £12,300 will be cut to £6,000 from April this year and to just £3,000 from April 2024.

Taxpayers using the CGT annual allowances and small shareholders will be particularly hit by the changes.

Laith Khalaf, head of investment analysis at AJ Bell, said: “An estimated 1.8 million more people will be caught in the dividend tax net in the next two years.

“635,000 more people will pay tax on dividends in the coming tax year, when the tax-free allowance is cut from £2,000 to £1,000, and 1,115,000 additional individuals will be brought into paying dividend tax from April 2024, when the allowance is cut again, to just £500.

“These are small shareholders and business owners who are going to be exposed to dividend tax on very modest amounts of income by the forthcoming cuts to the dividend allowance. And the 1.8 million doesn’t include those who might already be paying a bit of dividend tax, who will end up paying more as a result of the reduced allowance. In total, HMRC estimates that 4.4 million people will be affected by the dividend allowance cut in 2024/25.”

Mr Khalaf said small shareholders face a “tax tsunami” from April, because on top of frozen income tax thresholds, and the cut to the dividend allowance, the government has also taken an axe to the Capital Gains Tax allowance.

Because of the cutting of the CGT allowance from £12,300 now to just £3,000 in April 2024, small shareholders will be paying £930 extra in Capital Gains Tax each year if they are a basic rate taxpayer, and £1,860 a year if they are a higher rate taxpayer.

A wealthy individual harvesting £1 million in capital gains a year will face additional tax of £1,860 as a result of the smaller capital gains tax allowance, he said.

He also warned that many more small shareholders would be forced to complete tax return for the first time and engage in complex capital gains calculations.

He said tax free shelters such as ISAs and SIPPs would come into their own but these would not provide enough help for those with larger sums invested.