From April 2016, the Dividend Tax Credit will be replaced by the new tax-free Dividend Allowance, which will be available to everyone.
The Dividend Allowance means that you won’t have to pay tax on the first £5,000 of your dividend income, regardless of any other income you’ve received.
Any dividend income over the allowance will be charged tax at the following rates:
|Up to £5,000||Nil|
|Basic Rate Band||7.5%|
|Higher Rate Band||32.5%|
|Additional Rate Band||38.1%|
What this means for you
If you’re an investor earning modest dividends from your shares, then you’ll see a reduction or no change in the amount of tax you pay.
Dividends received by pension funds that are currently exempt from tax, or from shares held in an ISA, will still continue to be tax free.
The new system means those that earn significant dividend income will end up paying more tax.
Unfortunately, the Dividend Allowance will not reduce your total income for tax purposes. Neither can the personal savings allowance be used against dividends.
If you would like to know more about the Dividend Allowance, please feel free to contact us.