New Dividend Tax Rules

10% tax rate on dividends have been abolished from 01 Apr 2016. New rules make it little more complicated for a business to calculate their taxes.

As per HMRC,

first £5,000 of dividends that you get in the tax year.
Tax bandTax rate on dividends over £5,000
Basic rate (and non-taxpayers)7.5%
Higher rate32.5%
Additional rate38.1%
Income thresholds are:
- Personal Allowance: £11,000
- Basic Rate Limit: £32,000
- Higher Rate Threshold: £43,000
 
So in case of low earnings, no need to bother for example 11k salary and 5k dividend will bring zero tax liability. 
For basic rate, if non dividend income is 20k and dividend income is 10k. Then only 5k dividend income will be taxed @ 7.5%. What if dividend income becomes 16k. Now first 5k no taxes, next 7k @ 7.5% and the remaining 4k @ 32.5% .

If non dividend income is 30k and dividend income is 20k now 11k of  non dividend income is tax free, 19k will taxed @ 7.5%, 5k dividend is tax free, next 8 k @ 7.5% and remaining 7k @ 32.5%.
 

 

Comments

Post a Comment

Popular posts from this blog

First Accounting Period- Corporation Tax

It is very important to register for Corporation tax in the first year of trade if you start trading after your company setup date because this will decide how many tax returns you need to submit if your first year of accounting is more than one year. HMRC has given two clear example to explain the issue.   Example 1 (If registered for Corporation tax service before accounting reference date) Company set up date is 11 May 2014, started trading at 22 July 2014 , register for Corporation Tax 26 August 2014 and accounting reference date is 31 May 2015. In this case only 1 tax return covering period 22/07/2014 to 31/05/2015 need to be submitted plus year end accounts from 11/05/2014 to 31/05/2015. Example 2 (If registered for Corporation tax service after accounting reference date) Company set up date is 11 May 2014, started trading at 22 July 2014 and accounting reference date is 31 May 2015. In this case only 2 tax return covering period 11/05/2014 to 21/07/2014 ...
Read more

Rental Income Spouse

Where the married couple has rental income from property, they can reduce the taxes by doing some good tax planning. If the property is owned jointly, both can claim rental income 50:50 in their tax returns regardless of ownership ratio (which can be different from 50:50). So it means rental income sharing can be 50:50 if ownership ratio is 40:60 or rental income sharing can be 30:70 if the ownership ratio is 30:70 etc. What is not possible is rental income sharing of 10:90 and ownership ratio is 60:40. But in case of disposal of property capital gains or losses will be shared in the ownership ratio. No inheritance tax in case of gift of property between spouses if married couple have same domicile (Uk or Non UK).  Form 17 is required to be filled to HMRC if rental income is shared by married couple within 60 days. If the property is owned by single spouse or unmarried couple then Form 17 requirement does not apply. Lets see an example, A couple own a property which they let o...
Read more