The Reduced Dividend Allowance
From 6th April 2018, the dividend allowance will reduce from £5,000 to £2,000. This will have implications for how business owners remunerate themselves and how investors hold their investments.
Dividend Taxation Rules
In April 2016 the dividend rules changed to include a dividend allowance of £5,000, which exempts the first £5,000 of dividends from income tax.
The other changes saw a removal of the tax credit that previously applied and there was an increase in the effective rates of tax to 7.5%, 32.5% and 38.1%.
From April 2018, this dividend allowance will reduce to £2,000 which brings a greater amount of dividends within the taxable regime for taxpayers.
Implications
Investors with dividends between £2,000 and £5,000 will become liable to tax, however in many cases this amount will be less than what was payable before April 2016.
Basic rate taxpayers with dividends in excess of the allowances will be worse off. Higher and additional rate taxpayers with dividends within the allowance still benefit compared to previous regime; however, if their dividends exceed the allowance then a greater amount of tax will be payable.
In all instances the actual amount of tax payable will depend on the levels of dividend and non-dividend income received in the tax year, relying on a personal tax calculation.
Strategies
Investors will dividends in excess of the allowances should consider how their investments are held. For example, it is possible to Bed & ISA investments into Stocks & Shares ISAs which is a tax efficient product.
Business owners will need to consider how they are remunerated – how much salary to pay themselves, the level of dividends payable and also their ability to fund their personal pension within the available annual allowance plus any carry forward.
On this day
16th February 1959 – Fidel Castro becomes Premier of Cuba after dictator Fulgencio Batista was overthrown on January 1st
