Don’t pay more! Tax planning ahead of the dividend rate changes in April 2016.
Changes announced in the Budget 2015 mean that there are significant changes to the dividend regime from April 2016 that will impact on OMB shareholders.
From 6 April, the current notional tax credit on dividends will be abolished, instead, a £5,000 tax free dividend allowance will be introduced and the dividend tax rates will be increased as follows:-
Basic rate dividend tax rate 7.5% (currently effective rate of 0%)
Higher rate dividend tax rate 32.5% (currently effective rate of 25%)
Additional rate dividend tax rate 38.1% (currently effective rate of 30.1%)
Many OMB’s pay themselves in the form of a low salary and larger dividends. The amount of tax payable for such OMB’s is therefore likely to increase significantly from 6 April 2016.
For example, if we assume that personal allowance is fully utilised by other income, the increased tax liability for an individual receiving either a £60,000 or £150,000 net dividend would be:
Income Tax Payable Under Existing Tax Rates £ | Income Tax Payable Under New Tax Rates From 6 April 2016 £ | Additional Tax Payable Under Post 6 April 2016 Rates £ | |
Net dividend £60,000
| 7,800 | 11,125 | 3,325 |
Net dividend £150,000
| 31,133 | 40,375 | 9,242 |
Planning Opportunities
By simply accelerating the dividend payment, ahead of the changes, shareholders will save money.
However there are consequences that will need to be considered such as timing of associated tax payment, cashflows and current income levels.
If you are thinking of paying yourself a large dividend, or wish to extract profits from the business in other ways please do not hesitate to contact Kelly Garside on 01204 414 243.
Disclaimer
The information was correct at time of publishing but may now be out of date.
