Taxation of dividend income from 6 April 2016

Taxation of dividend income from 6 April 2016

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 non-dividend income you have.

You’ll pay tax on any dividends you receive over £5,000 at the following rates:

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

Example

Say you take £8,000 in salary and £40,000 in dividends from your company:

2015/16

2016/17
Salary 8,000 8,000
Dividend income 40,000 40,000 
Plus tax credit 4,444
  52,444 48,000
Less : Pers allowance

10,600

 11,000
Taxable income

41,844

37,000
 
Tax at

10% on

 31,785 3,178 0% on 5,000 0
 

32.5% on

 10,059 3,269 7.5% on 27,000 2,025
  32,000
Less tax credit 4,184 32.5% on 5,000

1,625
Tax due     2,263      

3,650 

So, you now have extra tax to pay in 2016/17 of £1,387.

We shall be taking a closer look at our corporate clients in view of these changes.

If you would like to discuss this issue further please do not hesitate to contact us:

email enquiries@hghyork.co.uk or call 01904 655202.

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