Dividend tax changes - A summer budget surprise!

  • by Carole Jordan
  • 24 Jul, 2015
Dividends spelled out in scrabble bricks after tax changes
One of the surprises of the Summer Budget was the announcement of new tax rules for dividends from April 2016.
For many years dividends have had their own tax rates and a 10% tax credit.

What dividend tax changes has the Summer Budget 2015 brought?

Mr Osborne announced a new regime on 8 July, to begin from 2016/17:

  • The 10% dividend tax credit will be abolished, so that the dividend you receive will be the taxable amount, with no ‘grossing up’ adjustment necessary.
  • There will be a new annual dividend allowance of £5,000. Dividends up to this limit will attract no personal tax. The dividend allowance is worth virtually nothing to basic rate taxpayers, but could save an additional rate taxpayer over £1,500.
  • For dividends above the new allowance, the tax rate payable will increase by 7.5% of the dividend, meaning that if you are:
    – A basic rate taxpayer, you will pay 7.5% instead of 0%;
    – A higher rate taxpayer, you will pay 32.5% instead of 25%; and
    – An additional rate taxpayer, you will pay 38.1% instead of 30.6%.

The surprising result of these proposals is that while basic rate taxpayers will pay more tax if they receive dividends above £5,000, additional rate taxpayers will have to receive over £25,370 of dividends before they are worse off.

These dividend tax changes are big, so understandably you might feel a bit confused or lost amongst the details.
If you need more advice or help in understanding these changes then call one of our advisors today on:  01273 882200.

All details above were correct at the time of publishing - for more up to date information please get in touch .

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