Dividend Tax Free Reduced

Dividend Tax Free Reduced

The Divided regime changed from 6 April 2016 where you won’t pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have. If you are a basis rate taxpayer, you pay 7.5% any dividend taken above £5,000 and 32.5% if higher rate and 38.1% for addition taxpayer.

For example:

Jack received non-dividend income of £8,500 and dividend income of £12,000 from shares outside of ISA, and if Jack is a basic rate taxpayer, he would pay tax on £4,500 at basic rate of 7.5%. This is worked out as follows:

“ Jack’s personal allowance of £11,000 for the tax year 2016/2017 will use up the £8,500 and part of the dividend of £2,500. A further £5,000 comes within the Dividend Allowance, living tax to pay of £337.50.

In view of the new changes announced in the spring budget 2017, subject to the Autumn budget, this available £5,000 tax free will be reduced by £3,000 to just £2,000 for dividends paid on or after 6 April 2018.

In the scenario above assuming the personal allowance is £11,500 for tax year 2018/2019 and Jack’s level of income remains the same, Jack will be paying an extra tax of £525.00.