From April 2016 the current dividend tax regime is getting an overhaul, which is resulting in a significant tax increase for most limited company owners.
In summary, the changes are as follows:
- Abolition of the tax credit – dividend income will no longer be grossed up on the personal tax computation.
- A Dividend Tax allowance of £5,000 for all tax payers regardless of income level.
- Dividends above £5,000 will then be liable to tax at 7.5% in the basic rate band, 32.5% in the higher rate band and 38.1% in the additional rate band.
- This compares with existing rates of 0%, 25% and 30.56%.
Depending on your personal circumstances there could be a significant amount of additional tax to pay on your 2016/17 income and as we see it you have 4 options available, these are:
- Increase your dividends from your company, so that your net income remains the same. Effectively this means your company bears the cost of the new rules rather than you.
- As a short term measure you can accelerate dividends in the current tax year to make the most of lower tax rates.
- Change your remuneration policy – company pension contribution or paying yourself a higher salary / bonuses may work better for you.
- Consider tax efficient investments – tax relief of 30% is available on certain investments.
To discuss how the changes will affect you personally and how we can work together to reduce the impact these changes will bring, contact Sarah Salton now on 01925 761 600 or email firstname.lastname@example.org