Dividends – The Old and the New Explained

The Old – Effective till April 5, 2015:
10% tax is deducted at source and treated as tax credit if there is additional tax liability. Essentially, basic-rate taxpayers pay nothing extra on the dividend they receive whilst higher-rate and additional-rate taxpayers pay 32.5% and 42.5% respectively, less the tax credit.

The New – Effective April 6, 2016:
No deduction at source. The first £5000 is tax-free. Anything above this is taxed at 7.5% for basic-rate taxpayers, 32.5 per cent for higher-rate taxpayers and 38.1 per cent for additional-rate taxpayers.

Basic-rate taxpayers with over £5000 dividends will have to pay tax on the excess whereas at the moment, there is nothing to pay.

Higher-rate and Additional-rate taxpayers will benefit from not having to pay tax on the first £5000 of their dividend income regardless of how much their earned income is.

Good to Know:
In the absence of other income, dividends will have to reach a level where the personal allowance and the £5000 allowance are used up before tax kicks in. A good case for bringing a low earning spouse on board perhaps.

About Phoenix

Accountant | Tax Specialist | Dreamy Entrepreneur | Blogger


No comments yet.

Get in touch

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Enter your email address to receive notifications of new posts by email.

Join 5,671 other subscribers
Follow Phoenix Debola on
%d bloggers like this: