Summary of Key Points
- The July 2015 Budget highlighted a new dividend tax from 6 April 2016.
- The new tax is £2,437.50 on a £34,500 dividend in 2018-19, compared to zero in 2015-16 tax year.
- Take care that dividends in your company are properly declared and documented.
What was announced by George Osborne
- The 10% dividend tax credit was abolished.
- The first £2,000 of dividend income in 2018-19 has 0% tax. (£5,000 for tax year 2017-18)
- For basic rate taxpayers, the dividend rate will then be 7.5%.
- The rates in the higher and top bands will be 32.5% and 38.1%.
Dividends in tax sheltered wrappers such as pensions and ISAs do not count towards the dividend tax.
Take care over declaring dividends
Because of the new tax, it is now more important than ever to ensure that dividends are properly declared and documented. For example, a dividend declared on 5 April 2018 counts towards tax year 2017-18. But if that dividend is declared on 6 April 2018 it then falls within 2018-19.
It is not hard to come up with a scenario where the 5 April 2018 dividend is at 0% or 7.5%, but the 6 April 2018 one is at 32.5% or 38.1%. So getting this stuff right can save shareholders a hefty amount of tax!