As we are all starting to get to grips with the new rules that will apply to all dividends paid on or after the 6th April 2016, it is important to realise that the significant number of small owner-managed companies are going to have to change how they extract funds from their companies. Continuing as most are doing now - that is, taking a small salary to preserve your entitlement to State Pension, and the balance as dividends - will, in most cases mean that more tax will be payable.
The rates of tax are as follows:
Basic rate tax payer - currently pays 0% tax on dividends - this will increase to 7.5%
Higher rate tax payer - currently pays 25% tax on dividends - this will increase to 32.5%
Additional rate tax payer - currently pays 30.55% tax on dividends - increasing to 38.1%
It is also important to remember that the £5,000 tax-free allowance for dividends will form part of your personal allowance, and is not in addition to your personal allowance! HMRC have provided some examples here.
Other people who are likely to face the brunt of these new rules are those whose income is made up of a significant proportion of dividend income. They too will need to understand the new rates of tax and how this is to affect their tax bills.
The rates of tax are as follows:
Basic rate tax payer - currently pays 0% tax on dividends - this will increase to 7.5%
Higher rate tax payer - currently pays 25% tax on dividends - this will increase to 32.5%
Additional rate tax payer - currently pays 30.55% tax on dividends - increasing to 38.1%
It is also important to remember that the £5,000 tax-free allowance for dividends will form part of your personal allowance, and is not in addition to your personal allowance! HMRC have provided some examples here.
Other people who are likely to face the brunt of these new rules are those whose income is made up of a significant proportion of dividend income. They too will need to understand the new rates of tax and how this is to affect their tax bills.
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