by Raza Ullah Samar, Chartered Accountant
In July 2015, the Chancellor introduced significant changes to the way dividends are currently taxed.
At the moment, all UK dividends are paid with a notional 10% tax credit, therefore the basic rate tax is already paid, hence, basic rate tax payers do not have to pay any additional taxes on dividends received.
From April 2015, this is being scrapped and replaced with a tax free dividend allowance of £5,000 per year. After this allowance, the tax rate payable on the dividends will depend on the individuals other taxable income. For the basic rate tax payer, this is 7.5%. For the higher rate tax payer it is 32.5% and for the additional rate tax payer it is 38.1%.
Although this is a simpler way to tax dividends, it is more costly for some individuals.
An example of the current method of taxing dividends:
From April 2016, dividends will be taxed as follows:
Tips to minimise tax on dividends
1. Ensure you use the annual tax free dividend allowance.
2. Make use of each spouse’s income tax allowance and tax bands.
3. Reduce other income
