New Dividends Tax Regime

11 December 2015

The summers Finance Bill received Royal Ascent and became Finance Act 205 (No.2) on 18th November 2015, this included the new rules for the taxation of dividends.

From 6th April 2016 the taxation of dividends is completely overhauled. There will be a new tax-free dividend allowance of £5,000, then to the extend dividends fall within the basic rate tax band they will be taxable at 7.5%, dividends within the higher rate band will be taxed at 32.5%, and finally those within the additional rate band will be taxed at 38.1%.

The new tax-free Dividend Allowance of £5,000 has turned out to be far less generous than purported in the chancellor’s initial announcement.  It was initially understood to be a tax free amount that would not affect your personal allowance and tax bands, unfortunately that turned out to be incorrect.

The tax free dividend allowance is in fact a nil rate band for dividends, still counting towards your taxable income, just taxable at 0%.

Dividend income is still deemed to be the top slice of your income, but the first £5,000 of dividends simply attracts a 0% rate of income tax.

The new dividend tax regime will affect the remuneration strategy for all businesses operating via limited companies, if you have not already done so you should work with your advisor to ensure you are still remunerated in the most tax efficient manner once the new rules come in.

TT Intelligence is a young, dynamic firm who embrace the idea that detailed information is key to making the right decisions about your tax affairs. Our consultants have been working in the tax and accounts industry for over 20 years, their extensive knowledge and expertise, coupled with a jargon-free approach, makes guiding clients through the complexities and technicalities of their tax affairs straight forward and efficient.

If you require any assistance with any aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

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