New Dividend Tax Rules for 2016/17

Have you taken advice yet on how the new 2016/17 changes to the way dividends are taxed affects you?

Date
17 December 2016
Author
Steven Case Steven Case
Reading time
Around 2 min
Categories
#Dividends
#Personal Tax

Have you taken advice yet on how the new 2016/17 changes to the way dividends are taxed affect you?

Are you paying yourself a minimal salary and maximising your dividends to take advantage of the lower rates? The changes could affect you.

HMRC are changing the way in which dividends are taxed from April 2016. Until now, dividends involve a complicated add back of corporation tax already paid on those earnings and a tax credit back of later on equal to the same value, leaving many people confused as to how tax is actually calculated. The new system will do away with this method and simply tax you at a percentage based on different thresholds. HMRC say the new rules simplify the calculation, but with these thresholds and new percentage charges, how does this affect you?

Let’s look at an example with the old and new method side by side;

Target Income of £70,000.

2015/16

2016/17

Salary

10,000

10,000

Dividend

60,000

60,000

Total

70,000

70,000

Personal Allowance

(10,600)

(11,000)

Taxable Income

59,600

59,000

Tax at 20%

Tax at 40%

Dividend Tax at 7.5%

2,025

Dividend Tax at 10%

3,179

Dividend Tax at 32.5%

11,337

8,775

Less 10% notional credit

(6,667)

Total Tax Liability

7,848

10,800

11.2%

15.4%

Without making any changes, based on these numbers there is an additional £2,952 of tax payable.

If you need some advice on how to best minimise this impact on you, get in touch and let’s see where we can help.

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