Changes to dividend income taxes and allowances

On April 6th 2016, new rates will be introduced for income tax to be charged on the dividends earned by UK residents. The new rates will stand at:

- 7.5% on dividend income for people on the basic (ordinary) rate band
- 32.5% for people on the higher (upper) rate band
- 38.1% for individuals on the additional rate band

Shareholders will need to be aware of these changes because they will have an effect on how much tax they owe. Failure to pay the right amount of tax can result in fines and additional penalties so it is best to ensure you are clear on what you will be charged and on what income.

That is not the only change that will come into effect in April. Alongside the tax rates a new Dividend Allowance will be introduced at the same time. The allowance will let people earn up to £5,000 before they start to get taxed on the dividends. This will be in addition to personal allowances so people could stand to earn more before they start to get taxed.

Dividend income can come from UK and non-UK resident companies, but will be subject to the same tax rates depending on the band the individual falls into. Regardless of the band, the first £5,000 will be covered by the dividend nil rate so they will only start being taxed once they receive in excess of this amount. For example, if you earned £7,000 as dividends you would be taxed 7.5%, 32.5% or 38.1% on the £2,000.

At Cohen Accountants we offer a wide range of accountancy services, including giving tax advice to clients throughout Brent. We are happy to offer advice and will help people to prepare for the changes to taxes on dividends. If you have any questions, please feel free to contact us to arrange a consultation.