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The dividend rules changed two years ago and as a result the first £5,000 of dividend income in a tax year is free of income tax. Dividends received over and above the £5,000 are subject to tax at the following tax rate bands:
Within the basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%
The rules have now changed again and from the next tax year 2018/19 (i.e. from 6 April 2018) the £5,000 allowance is to drop to £2000. So this tax year, 2017/18 is the last tax year for the £5,000 tax free allowance.
Tax planning: if you control your company which has sufficient distributable reserves, ensure the £5,000 tax free allowance is fully utilised for all shareholders before 5 April 18.
Within family companies consider restructuring the shareholdings so that multiple tax free dividend allowances can be received. Obviously planning is required so that you are not caught by HMRC anti avoidance regulations.
If you would like to discuss further please contact Shakeel Butt. shakeel@wsm.co.uk or 0208 545 7624
Shakeel trained and qualified with a Central London firm and is a fellow of the Chartered Association of Certified Accountants. Before joining WSM, Shakeel was a sole practitioner for over twelve years. He advises on a wide range of accountancy, taxation and business related issues and is also the resident property tax specialist. Shakeel is married with three children and over the years has completed various marathon walks for charity.
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