In the second part of the dividend tax series we consider the situation for higher rate taxpayers

In summary

  • Even higher rate taxpayers will receive the £5k tax free allowance
  • Once the higher rate threshold has been passed the dividend tax will be 32.5%
  • If a business owner takes the maximum “small salary and dividend” as a basic rate taxpayer they will pay an extra £2k tax, then 32.5% on anything in excess of the £42k threshold
  • Maximum earners with income over £150k can still receive the £5k tax free dividend, perhaps on a small shareholding or investment portfolio
  • Any dividend in excess of that will be taxed at 38.1%

There are options to reduce the impact of these changes particularly for business owners with reserves which can be used. These will be addressed in the next part of the series.

This is a brief summary of the new rules on dividend tax for higher rate taxpayers which will apply from 6 April 2016 and you should seek professional advice before taking any steps based on the contents. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”