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?
Changes at a glance:
There are 4 main changes that will come into effect from April 2016:
- The 10% dividend tax credit will be abolished.
- 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.
- 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%.
- No tax will be deducted at source; it will be paid through self-assessment.
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