New Dividend Tax. Are You Ready?

You may be aware that in 2015 the then Chancellor, George Osborne, announced a radical change in the way dividends are taxed. In the past, basic rate taxpayers haven’t had to pay any tax on dividends due to the 'notional tax credit' attached to them. As this was a remnant of a long-redundant tax regime, the notional tax credit was abolished from April 2016. Now all taxpayers in receipt of dividends over £5,000 (the dividend allowance) will pay tax at 7.5% for basic rate, 32.5% for higher rate and 38.1% for additional rate taxpayers.

This is a major change for director-shareholders of companies who take their remuneration as a small salary topped up with dividends, and in many cases will lead to a higher personal tax liability due January 2018. Are you ready for this liability? We advise starting to plan for this extra tax now!

For an example of how this could affect you and your personal tax liability, why not go to our website and take a look at our video about 'Bob' the director-shareholder. If you would like a personal illustration of how it affects you, please get in touch.

Just a heads up… The £5,000 dividend allowance currently in place is planned to decrease to £2,000 from April 2018.

Katie Kettle
Technical Manager

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