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  Tax changes for dividends

How The Changes To Dividend Taxation in 2016 Will Affect You

In the Budget, earlier this year, the Chancellor announced 3 proposed changes to Dividend Taxation to take place next year:

  1. Changes to the rates of dividend income tax
  2. The abolition of the dividend notional tax credit, and
  3. The introduction of a new Dividend Tax-Free Allowance of £5,000

From 6th April 2016, taxpayers who take a substantial proportion of their annual incomes in the form of share dividends are likely to be affected by these changes.

 

Dividend tax rates
2015/16              2016/17
Non-taxpayers                         0%                       0%
Basic rate taxpayer               0%                     7.5%
Higher rate taxpayers         25%                   32.5%
Additional rate taxpayers    30.6 %               38.1%

 

So, How Much Extra Will It Cost You?

As the changes are still under speculation, we are currently awaiting legislation to confirm the exact rates. However, an estimation of the new rates payable on dividend income above the £5,000 allowance is presented below.

Netdividend New regime for 2016/17tax on dividend Old regime –tax on dividend Extratax
10,000 £155 £155
20,000 £905 £905
30,000 £1,655 £1,655
40,000 £2,420 £1,845 £575
50,000 £5,670 £4,345 £1,325
60,000 £8,920 £6,845 £2,075
70,000 £12,170 £9,345 £2,825
80,000 £15,420 £11,845 £3,575

For example, under the new proposed rules, if you receive a net dividend from your limited company of £50,000 in 2016/17 the tax on the dividend will be £5,670.  Under the old regime, the tax would have been only £4,345. Based on these estimations of the new dividend regime, you would be £1,325 worse off as a result of the changes.

Now, What Can You Do In The Meantime?

The new dividend regime does not come into effect until 6th April 2016 and therefore there is scope to maximise your dividend extraction before this date.  The amount you can extract will depend on the profits of your company.

If you would like any further information or advice, please email Paul at info@cgaacountancy.co.uk or call 01924 262133.