Tax on dividends are changing

Current dividend tax 2015/16

Currently any dividend taken is grossed up 10% which means that your gross income on a dividend of £10, 000 would show as £11,111 on your self-assessment tax return.

The basic rate tax for dividends is currently 0%

The higher rate tax for dividends is currently 25%

The additional higher rate for dividends is currently 30.6%

However, HMRC are abolishing the 10% tax credit from April 2016.

New dividend tax 2016/17

The 10% tax credit is being replaced by a £5,000 dividend allowance. This means that the first £5000 of dividend income is tax free.

Any dividend above the £5,000 will be taxed at 7.5% at basic rate (i.e. income upto £32k), 32.5% at the higher rate (i.e. income between £32k and £150k) and 38.1% (i.e. income above £150k) at the additional higher rate.

Also a dividend of £10,000 would show on your self-assessment tax return as £10,000 which means your overall income will show as lower than 2014/15 - something to remember if you are thinking of renewing a mortgage or getting finance.

Tax planning

If you are able to it would be advisable to take some of next years’ dividend this year in order to save 7.5% tax i.e. before 5th April. 2016.

For 2015/16 you can split your dividends with your partner so that both of you take advantage of the £5000 tax free allowance.

You can give £5k dividend to older children i.e. above 18 years old. For example if a child is going to university, the dividend can be used for university accommodation. The child can be given shares with no voting rights.

Speak to Selena at S J Baker Accounting if you would like to explore any of the above options.

Tel: 01793 495559 or email sjbaccounting@hotmail.co.uk.

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SJ Baker Accounting Ltd, 45B & C The Shaftesbury Centre, Percy Street, Swindon, Wilts SN2 2AZ| Tel: 01793 554870

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