This post is to help clear up any confusion you may have around the dividend tax allowance changes that came into effect as of April 2017 and then the further changes that are set for 2018.
The 2017 dividend tax allowance change impacts everyone who takes over £5,000 in dividends from a company.
As of April 2017 the tax-free amount of dividends you can extract from a company is £5,000. The allowance in 2016 was £40,000 so this change considerably impacts a lot of people!
Currently, a UK resident who receives no more than £5,000 of dividends in the tax year has no tax to pay on that income as the dividend allowance applies a 0% rate to such dividends.
Dividends received above the £5,000 allowance will be taxed at 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer and 38.1% for additional rate taxpayers with income over £150,000.
Moving forwards, the dividend allowance is falling again from £5,000 to £2,000 as of 6 April 2018.
Dividends paid on shares contained within an ISA or pension scheme are not affected by the change in the allowance. If your company pays dividends to other shareholders, perhaps your family members, you should review that dividend strategy.
There are big changes here for all individuals receiving dividends from a company and it’s important that you get the correct advice for your individual circumstances.
If you have any queries regarding this or would like to chat to any of our team do not hesitate to get in touch!