Q: I have a remuneration package that is a mixture of salary and dividends. Can you give me an idea of what the changes are to the tax that will be due on a dividend?

 

A: There is a new regime for the taxation of dividends in respect of all payments made on or after 6 April 2016. In broad terms, the income tax payable on dividends from that date will be subject to an extra 7.5% tax. Up to 5 April 2006 when a dividend is paid it carries with it a 10% notional tax credit and this tax credit satisfied the tax liability on dividends falling within the basic rate band. From 6 April 2016 the notional tax credit is to be abolished.

From 6 April 2016 everyone is entitled to a £5,000 tax free dividend allowance and although this sounds generous the allowance reduces the basic rate band. Any dividends paid above £5,000 are subject to tax at 7.5% where they fall within the basic rate band. If dividends are paid in excess of the basic rate band then tax at 32.5% applies for higher rate taxpayers and 38.1% for additional rate taxpayers.

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