Changes to Dividend Allowance

Dividend Allowance

Currently only higher or additional rate taxpayers pay tax on dividends. However 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.

The allowance is available to anyone who has dividend income.

Headline rates of dividend tax are also changing.

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

We can advise you on how this will affect you and your business.

For Example

“I have a non-dividend income of £6,500, and a dividend income of £12,000 from shares outside of an ISA”

With a Personal Allowance of £11,000, £4,500 of the dividends are under the threshold for tax. A further £5,000 comes within the Dividend Allowance, leaving tax to pay at Basic Rate (7.5%) on £2,500.

Further examples and information can be found at
https://www.gov.uk/…/dividend-…/dividend-allowance-factsheet

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