• 23 Mar 2017

If you take dividends from your own company, you are likely to be affected by the cut in the dividend allowance from £5,000 to £2,000 from 6 April 2018.

Currently, a UK resident individual who receives no more than £5,000 of dividends in the tax year has no tax to pay on that income as the dividend allowance applies a 0% rate to such dividends. Dividends not covered by the allowance are taxed at 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer and 38.1% for additional rate taxpayers with income over £150,000.

The cut in the allowance will thus cost a basic rate taxpayer £225, a higher rate taxpayer £975, and an additional rate taxpayer £1,143 in extra tax per year, assuming that each receives at least £5,000 of dividends. Dividends paid on shares contained within an ISA or pension scheme are not affected by the change in the allowance.

If your company pays dividends to other shareholders, perhaps your family members, we should review that dividend strategy.

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