Dividend tax reminder

From 6 April 2016, any dividends you receive up to £5,000 are tax-free. Dividends received in excess of this amount will be taxed as follows. If they form part of your:

·         Basic rate tax band – taxed at 7.5%

·         Higher rate tax band – taxed at 32.5%

·         Additional rate – taxed at 38.1%

Last year, up to 5 April 2016, dividends received that fell into your basic rate tax band were covered by a tax credit. Accordingly, tax payers with dividend income in excess of the new £5,000 limit will be paying more tax on their dividend income 2016-17.

Readers should also note that for 2016-17:

·         Dividends that fall within your personal tax allowance do not count towards the £5,000 dividend allowance.

·         If your dividends fall under the £5,000 allowance, there is no need to tell HMRC unless you are registered for self-assessment.

·         If your dividends received are between £5,000 and £10,000 you should tell HMRC by ringing their helpline, ask them to adjust your tax code, or enter the details on your tax return if you are required to file.

·         If your dividends are over £10,000 you should be registered for self-assessment. For the tax year 2016-17, you have until 5 October 2017 to register with HMRC.

There are still advantages to maintaining a high dividend, lower salary strategy if you are a director/shareholder of a small limited company. However, it is worth revisiting the calculations on an annual basis to ensure you are optimising the various allowances available.

Latest Blog
28
Aug

Effects of the US presidential election

The American presidential election may have significant effects on the United Kingdom...

Read More
27
Aug

Further drop in interest rates

Interest rates are a powerful lever in our economy. Increase rates and economic activ...

Read More
22
Aug

Rachel Reeves announcements since the election

Since Rachel Reeves was appointed Chancellor of the Exchequer in May 2024, she has ma...

Read More
20
Aug

Private pension contributions

Tax relief on private pension scheme contributions is a significant incentive in the ...

Read More