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Dividend tax changes

Alongside the cuts to corporation tax rates the government is looking to reform and simplify the system of dividend taxation. This should not change the position for shares held in ISAs and pension schemes.

From April 2016 the deemed tax credit is being abolished. Instead there will be a new tax-free Dividend Allowance of £5,000 a year for all taxpayers. Inevitably the changes will result in losers as well as winners.

Currently an individual with his own company will typically take a salary up to his personal allowance and then a dividend of around £28,000 giving him around £38,000 totally tax free. Thereafter the next £51,000 of dividend (deemed gross c. £57,000) carries a tax charge of £12,750.

Under the new rules the liability will rise to £18,675.

Just to put this in context as a bonus the cost would be around £30,380 (tax and NIC).

 

 

Date: 8th July, 2015
Author: Cathy Corns

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