In the summer Budget there was an announcement about changes to dividend taxes from April 2016.

All taxpayers will have a dividend allowance of £5,000 a year at the new tax rate – which is better for many small investors seeking income from their shareholding.

After this, the rate of tax payable on dividends will depend on taxable income. If your dividend income takes you from one income tax band into the next, you will then pay the higher dividend rate on that portion of income.

The Chancellor has made the move to encourage small investors to invest – but a new tax rate that will increase to a maximum of 38.1 per cent will hit wealthier small investors, large-scale investors and chief executives with share options.

Each person will be entitled to a new Dividend Allowance of £5,000 a year.

Dividend Tax Rates

Non-taxpayers 2015/16: 0%
Non-taxpayers 2016/17: 0%

Basic rate taxpayers 2015/16: 0%
Basic rate taxpayers 2016/17: 7.5%

Higher rate taxpayers 2015/16: 25%
Higher rate taxpayers 2016/17: 32.5%

Additional rate taxpayers 2015/16: 30.6%
Additional rate taxpayers 2016/17: 38.1%

There are ways to maximize existing arrangements to reduce the impact of this change though, for example, married couples’ allowance, ISAs, and SIPPs (Self-Invested Personal Pensions).

If you need help and advice on any aspect of the changes to the dividend tax rates contact us.