The end of the tax year is in sight so now is an appropriate time to be reminded of the changes to the way dividends are taxed come April 6th 2016:
In summary, from April 6th 2016, tax payers will be given a new £5,000 tax free allowance on dividend income. Any dividends received beyond that limit will be charged at:
- 7.5% for basic rate taxpayers (previously 0%)
- 32.5% for higher rate taxpayers (previously 25%)
This tax is paid personally using the self-assessment system.
Depending on your plans for any reserved company profits you may consider withdrawing a dividend before the end of the current tax year.
Other effective ways to mitigate this additional tax include:
- Pay into corporate pension fund
- Build a balance in the company account and take the funds as a capital gain on closure.
- Consider options such as limited company owned buy to let properties