Reduction in dividend allowance from 6 April 2018
Did You Know About These Dividend Allowance Changes?
From 6 April 2018, the Dividend Allowance will reduce from £5,000 to £2,000. This change affects shareholders who receive dividend income, particularly those who own their own companies.
The reduction means that any dividend income above £2,000 will be subject to dividend tax at the following rates:
- 7.5% for basic-rate taxpayers
- 32.5% for higher-rate taxpayers
- 38.1% for additional-rate taxpayers
This change increases the tax burden on individuals who receive dividends, making effective tax planning more important than ever.
Maximising the Current £5,000 Dividend Allowance
Before the reduction takes effect, shareholders should consider maximising the current £5,000 allowance. If you have distributable reserves, taking dividends before 6 April 2018 could be beneficial.
To ensure compliance, make sure to:
- Declare dividends before the end of the tax year.
- Complete all necessary paperwork to record dividend payments correctly.
- Consult with a tax advisor to explore the most tax-efficient approach.
Taking full advantage of the current Dividend Allowance could result in significant tax savings before the new limit applies.
Planning Ahead for the Dividend Allowance Reduction
The reduction to £2,000 means many business owners will pay more tax on dividends. To prepare, consider:
- Adjusting dividend distributions to minimise tax exposure.
- Exploring alternative remuneration methods, such as salary and pension contributions.
- Reviewing your overall tax strategy to optimise tax efficiency.
By planning ahead, you can reduce the financial impact of the Dividend Allowance Reduction.
How We Can Help
If you want to discuss how the Dividend Allowance Reduction affects you, we can help. Our team provides tailored tax planning strategies to minimise your tax liability.
For expert advice, contact us today.