The well publicised changes to the taxation of dividends are fast approaching as they take effect from 6 April 2016. In brief, the proposed changes are as follows:
- From April 2016, dividends will no longer come with a notional 10% tax credit
- A £5,000 tax free dividend allowance will be introduced
- Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate)
- Individuals who are basic rate payers who receive dividends of greater than £5,000 will need to complete self-assessment returns from 6 April 2016
There are a number of actions that can be taken by individuals who are affected by the proposed changes. These actions include advancing dividend payments before 6 April 2016, using the new pension rules to extract funds from a company, use of loan accounts and extracting funds as capital instead of income where circumstances allow.