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Changes to Taxation of Dividends

10th July 2015

Chancellor George Osborne announced fundamental changes to the way in which dividends are taxed in the summer 2015 budget. HMRC have since issued a factsheet containing examples and advice on how the new regime will work.

The fact-sheet states that: “from April 2016 you have to apply the new headline rates on the amount of dividends you actually receive, where the income is over £5,000 (excluding any dividend income paid within an ISA).”

The Dividend Allowance will not reduce your total income for tax purposes. It will mean that you do not have to pay any tax on the first £5,000 of dividend income you receive in the year. Dividends taken within your allowance will still count towards your basic or higher rate tax bands. These changes will come into effect on dividend receipts from 6th April 2016 so those who draw profits from their company as dividends may wish to consider whether to increase dividend payments in advance of this date.

Essentially the effective dividend tax rates (taking into account notional tax credit) stand at: 0%, 25% and 30.6% for basic, higher rate and additional rate tax bands respectively. From 6th April 2016, these rates will increase to 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

For advice on taking dividends from your business and how these changes will affect you, give us a call on 01622 756849 or email info@henry-reeves.co.uk.

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