Reminder Changes to Dividends – From April 2016, the notional 10% dividend tax credit will be replaced by a £5,000 tax-free dividend allowance.
Dividend income above this allowance will be taxed at:
7.5% basic rate
32.5% higher rate
38.1% additional rate
If you receive dividend income of less than £5,000 per year, or you receive income from your pension or NISA, they will not be affected by this change.
Please note, this is a very brief summary of the changes. Please refer to HM Revenue & Customs website for full details of the changes to dividends.
Reason for the Reminder
You should also be aware that under the current rules you receive a credit on top of your dividend if your trading company has paid Corporation Tax. You will not receive credits for Corporation tax from April 2016.
Your accountant should be contacting you now to ask you to consider paying dividends in this current financial year, rather than next year.
I wonder though, if that is necessarily the best way forward for you and your family.
Focussing on dividends to the exclusion of anything else may work for the accountant, as it is something they are familiar with advising upon, but is it best for you.
We have for many years now been promoting “total planning” a systemised means of looking at all of your financial arrangements and all of the assets under your control (and those assets that you are able to influence) which means you can align your remuneration strategy with your financial aims and ambitions. The result being that you pay less tax and increase your net worth.
The reason this is so relevant now is the changes to pensions that have already been announced and will take effect next year will significantly reduce your ability to make a real difference to your financial future.
No doubt you will have already have heard of the rumours that the rights attaching to pensions may significantly change in the very near future. If you are quick then this should provide a real financial opportunity of significantly more impact than the changes to taxation of dividends.