Changes in Dividend tax – 2016

Dividend Tax changes.

From 6 April 2016 tax rates applied to dividend income will change significantly. Essentially for nearly everyone they will have to pay more tax overall IF they take a dividend from their company. However it still has to be emphasized that the corporate structure still offers benefits in profit extraction tax efficiently.

Summary of changes.

The effect of the change is that any Dividend over £5,000 will now be taxed
The legislation changes effectively mean that from 6 April 2016 the following will apply in an income tax computation:

A  ZERO % rate of tax applies to £5,000 applied to dividend income. Consequently , this  allowance reduces the basic-tax rate band, rather than being applied in addition to it. So there is some maths to do. Without getting to complicated, here is how the tax rates will work:

Up to basic rate band: 7.5%
Higher rate: 32.5%
Additional rate: 38.1%
The notional dividend tax credit will no longer apply. Dividend income in the tax computation will not be grossed up.