With effect from 6th April 2016 the rules surrounding the taxation of dividend income are changing. The result of these changes will mean in most cases additional income tax being due.
We will see the introduction of a new £5,000 ‘Dividend Allowance’ and the abolition of the notional 10% tax credit on dividends received. The dividend allowance will effectively mean the first £5,000 of dividend received is tax free with dividend income above this taxed at the new rates of;
7.5% for dividend income received within the basic rate band (£5,000-£32,000)
32.5% for dividend income received within the higher rate band (£32,001 – £150,000)
38.1% for dividend income received within the additional rate band (Over £150,000)
The table below provides an indication of how the tax will vary. It assumes your only other income will be an annual salary of £8000;
| Annual Dividend Income | ‘Old’ Tax Paid | ‘New’ Tax Paid | Increase |
| £5,000 | NIL | NIL | – |
| £10,000 | NIL | £150 | £150 |
| £30,000 | NIL | £1,650 | £1,650 |
| £50,000 | £4,763 | £7,650 | £2,887 |
| £80,000 | £12,263 | £17,400 | £5,137 |
| £100,000 | £20,804 | £23,900 | £3,096* |
| £120,000 | £26,248 | £34,225 | £7,977 |
*Grossing up of the net dividend under the ‘old’ rules results in the personal allowance being lost in full. Under the ‘new’ rules this wouldn’t be the case.
The changes highlighted above affect the personal tax year ending 5th April 2017 and any additional tax will become payable on 31st January 2018.
Whilst this information is designed to alert you to these changes it may not be tailored to your specific circumstances. If you would like to discuss how these changes could affect you please contact James Hartley on 0114 266 4432 or jhartley@smh.group.
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