New Dividend Allowance

New Dividend Allowance

The new dividend tax regime comes into force from 6 April 2016. From that date, the tax credit attaching to dividends is abolished.

The new dividend tax regime comes into force from 6 April 2016. From that date, the tax credit attaching to dividends is abolished. Instead, all taxpayers receive a dividend allowance which enables the first £5,000 of taxable dividend income to be received tax-free. Thereafter, dividends are taxed at 7.5% to the extent that they fall within the basic rate band, at 32.5% to the extent that they fall within the higher rate band and at 38.1% to the extent that they fall within the additional rate band.

The new dividend regime will impact on the remuneration strategy for those with personal and family companies who choose to pay a small salary and extract further profits in the form of dividends.

To ensure that you make the best use of all the available allowances, it is advisable to review your affairs with your tax adviser.

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