Dividend Allowance Changes 2016

INTRODUCTION

In August 2015 as part of the Summer Budget, the Government announced changes to the Dividend Tax Credit scheme.

TAX FREE DIVIDEND ALLOWANCE

From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what other non-dividend income you have.

Headline rates of dividend tax are also changing. You’ll pay tax on any dividends you receive over £5,000 at the following rates:

Tax BandEffective dividend tax rate 2015Effective dividend tax rate 2016*
Basic rate (and non-taxpayers)0%7.5%
Higher rate25%32.5%
Additional rate30.56%38.1%

 

The allowance is available to anyone who has dividend income.

WHAT DOES THAT MEAN FOR YOU?

It doesn’t necessarily mean you will be paying more tax. If you receive less than £5,000 per year in dividends, there will be no tax due. Dividend income will still be eligible for the personal allowance.

HMRC claims that if you are an investor with modest income from shares, you’ll see either a tax cut or no change in the amount of tax you owe and that only those with significant dividend income will pay more tax.

However if you receive more than £5,000 per year in dividends then you may be eligible to pay more tax.

GET IN TOUCH

At Slaters & Co Accountants we understand how challenging running your own business can be and how confusing calculating tax can be.

If you want to discuss this in more detail then do not hesitate to get in touch today. Contact us on 01782 566101 or Contact@SlatersCA.co.uk