Changes to the taxation of dividends were announced in the 2015 Summer Budget which will come into effect from the start of the 2016/17 tax year (6 April 2016).
From this date the notional 10% tax credit attaching to dividends will be abolished and with it the need to gross up net dividends when calculating an individual’s tax liability. Instead all taxpayers can receive £5,000 of dividends tax free. Dividends received above this amount are taxable at the new dividend tax rates.
If you receive significant dividend income there may be advantages in bringing forward dividends into the 2015/16 tax year. However the decision is not straightforward as large dividends could result in higher effective tax rates if your personal allowance is lost. The above changes therefore need to be reviewed in light of each individual’s personal income circumstances.
Generally you will pay more tax on your dividend income from 6 April 2016 if your dividend income exceeds £5,000; however dividends will still be taxed at lower rates than other sources of income.
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