In the emergency budget in June 2015, the Chancellor announced that the treatment of dividends will change after 6th April 2016. This will affect many shareholders who have up to now enjoyed sizeable dividends without any tax implication.
From 6th April 2016 the dividend tax credit will be abolished. In its place will be a Dividend Allowance which is £5000 of dividend income will be tax free and for dividends over £5000 will be taxed at 7.5% for the basic rate tax payers, 32.5% for the higher rate tax payers (no change) and 38.1% for the additional tax payers.
For a shareholder with a £10,000 salary, in 2015 they would have dividends of £30,000 and pay £213 in tax. The same £30,000 dividend under the new rule will result in a tax bill of £1800, an increase of £1587.
Taking dividends is still a tax efficient way of extracting profits from the company providing there profits to take.
If you need help on the best way to extract your profits, please talk to us.