Dividends – The Old and the New Explained

The Old – Effective till April 5, 2015:
10% tax is deducted at source and treated as tax credit if there is additional tax liability. Essentially, basic-rate taxpayers pay nothing extra on the dividend they receive whilst higher-rate and additional-rate taxpayers pay 32.5% and 42.5% respectively, less the tax credit.

The New – Effective April 6, 2016:
No deduction at source. The first £5000 is tax-free. Anything above this is taxed at 7.5% for basic-rate taxpayers, 32.5 per cent for higher-rate taxpayers and 38.1 per cent for additional-rate taxpayers.

Basic-rate taxpayers with over £5000 dividends will have to pay tax on the excess whereas at the moment, there is nothing to pay.

Higher-rate and Additional-rate taxpayers will benefit from not having to pay tax on the first £5000 of their dividend income regardless of how much their earned income is.

Good to Know:
In the absence of other income, dividends will have to reach a level where the personal allowance and the £5000 allowance are used up before tax kicks in. A good case for bringing a low earning spouse on board perhaps.

About Phoenix

Accountant | Tax Specialist | Mother | Entrepreneur | Blogger


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Phoenix Debola is licensed and regulated by the Institute of Financial Accountants (UK), the Institute of Public Accountants (Australia) and FA and the Association of Accounting Technicians (AAT) to provide Accountancy, Tax and related services. IFA/IPA and AAT are recognised by HM Treasury to supervise compliance with the Money Laundering Regulations and Phoenix Debola Accountancy Practice is supervised by the AAT in this respect.

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