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: robert.salenius@hghyork.co.uk, nigel.atkinson@hghyork.co.uk, paul.morris@hghyork.co.uk or call 01904 655202.
