Dividend Tax Reform

ScotiaAccounting  |  22nd February

A couple of months back we BLOGGED ON THE MAJOR ANNOUNCEMENTS OF THE SUMMER BUDGET. One of those was the change in dividend tax legislation which will come into force as of April 2016. Information on the changes has been scarce but HMRC RECENTLY RELEASED AN EASY TO UNDERSTAND FACT-SHEET.

An allowance of £5,000 will be put in place whereby dividends won’t be taxed up to this level. Over this limit you will be taxed the following:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band

Dividends received by pension funds will still be tax exempt and dividends received by ISA’s will still be tax free.

The first £5,000 dividends will not be taxed irrespective of an individual’s earnings.

People that will be hit the hardest in terms of increased tax will be small business owners who mainly pay themselves in dividends.

More information is said to be available from HMRC at the end of the year.

If you feel this will affect you and you would like to discuss this in more detail please get in touch HERE.