The UK Government has recently released an outline of amendments that will be imposed on dividend tax and will come into effect on the 6th of April 2016. Below we explain the proposed changes to the way in which dividends will be taxed from the date of effect of the amendments (06.04.2016).
In accordance to the Finance Bill 2016 which includes the new rules for dividends, the following proposed changes will apply:
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The speculative 10% tax credit on dividends will be abolished
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A new tax-free dividend allowance of £5.000 will be introduced
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Dividends above this level will be taxed at a rate of 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate)
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Dividends received by pensions and ISAs will be unaffected
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Dividend income will be treated as the top band of income
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Basic rate payers (individuals) receiving more than £5.001 will be required to complete a self assessment returns
More precisely, the proposed changes will affect anyone in receipt of dividends in 2016/17, with the first £5.000 of any dividends being tax free. This will result to most taxpayers paying tax at an extra 7.5% per annum, affecting most of all small business owners.