Taking the trouble out of Tax

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Increase in Dividend Tax from April 2016

The bad news is that this will mean extra tax for most small company owners. At present, dividends carry a 10% tax credit, and are taxed at 10% at basic rate, which makes the effective tax rates:

Basic rate    : Nil
40% payers: 25%

From April 16, the 10% tax credit is abolished, replaced by a £5000 dividend allowance for everyone.  If you are a higher rate payer with a small share portfolio, this is good news. For the rest of us, any dividends over £5000 will have effective rates of:

Basic rate    :  7.5%
40% payers: 32.5%

What does this mean in real money?

Simply put, small business people taking small salary and dividends of about £30000 will currently not pay any tax, but from April 16, they will pay £1875!

It is not yet clear how this Dividend £5k allowance will relate to the existing investment income allowance of £5k. More news on this when we have clarification.