14th December 2018

Dividends shmividends – a simple breakdown of how the new dividend tax allowance rules will affect you

*New rules alert*.

These new rules relate to dividends – more specifically, dividend tax allowance. Sound mind-boggling? Fret not, we’re going to break it all down for you.

If you receive a dividend after 5 April 2016, here are the new rules that will apply:

· The first £5,000 of your dividend tax allowance (DTA) will be taxed at the nil rate (and nil rate = zero, zilch, nada). This means the first £5,000 of your dividend income – after your personal savings allowance has been deducted – will have no tax payable.

· Any dividends above the first £5,000 nil rate will be taxed like so:

> 7.5% on dividends within the basic rate band (aka ordinary rate) > 32.5% on dividends within the higher rate band (aka upper rate) > 38.1% on dividends within the additional rate band (aka additional rate)

· Tax credit – which at the moment attaches to dividends paid by UK companies – will be no more (more on these below)

· Any dividend income paid within an ISA will continue to be tax free, though. Phew.

How will getting rid of the dividend tax credit affect you?

When you crack out the calculator to tally up your taxable income as a shareholder, your dividends will no longer be grossed up by 10%, and your dividends won’t be set off by your 2016/17 personal savings allowance or your 2016 £5,000 savings allowance.

Previously, the 10% tax credit may have covered all your income tax liability, which means you wouldn’t have had reporting obligations to HMRC. But this may not be the case any more… so make sure you check. (Or just call us.)

Saying sayonara to the dividend tax credit may also create a liability to pay income tax on Gift Aid donations.

Need a quick reminder of what your personal savings allowance is?

It’s a cool £1,000 if your highest rate of income tax in a year is the basic rate of 20% and a slightly less cool £500 if it’s the higher rate of 40%.

Do you need to do anything?

You may want to plan to transfer shareholdings and time your dividends to work best for you. If you’re not sure how to plan, or if you even need to plan, we can help you out. Give us a buzz today on 02921 303 888.