The chancellor George Osborne wasn’t exaggerating when he said he was undertaking a “major and long overdue reform to simplify the taxation of dividends” in his Summer Budget speech.

 

Want to understand how dividend taxation will change from April 2016?

 

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Changes at a glance:

 

There are 4 main changes that will come into effect from April 2016:

  1. The 10% dividend tax credit will be abolished.
  2. Individuals will have a £5,000 a year tax-free dividend tax allowance.  This will not reduce total income for tax purposes and will only apply to dividend income.
  3. Dividend income exceeding the annual allowance will be taxed according to an individual’s income tax band.  Basic rate taxpayers will pay 7.5% higher rate 32.5% and additional rate 38.1%.
  4. No tax will be deducted at source; it will be paid through self-assessment.

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