Major changes to taxation of dividends – are you affected?

Changes to taxation of dividends announced in Budget 2015

In this year’s summer Budget the Chancellor announced major proposals for the taxation of dividends.

The main aim of the legislation was to deter small businesses from incorporating so that directors can be remunerated through tax-efficient dividends rather than salaries. Higher rate taxpayers in receipt of dividend income will also lose out and see their tax liability increase.

The main changes are as follows:

  • Abolition of the tax credit on dividends
  • A new dividend tax allowance of £5,000 (note this is different to the new savings allowance of £1,000 which is NOT available against dividend income)
  • Dividends will be taxable at 7.5% basic rate band, 32.5% in the higher rate band and 38.1% in the additional rate band.

The new regime will be in place in April 2016. We are currently reviewing all clients’ extraction methods to ensure that they are tax-efficient and will shortly be in contact to discuss further and implement a plan for next year if relevant.

In the meantime, if you have any queries on the changes, please call Julia Whelan on 01527 558539 or email [email protected].