Under proposals announced in the Summer Budget, the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance. (See: Summer Budget 2015 (4): Attack on contractors' dividends - Shout99, July 2015)
The Dividend Allowance means that there will be no tax to pay on the first £5,000 of dividend income, no matter what non-dividend income you have.
The headline rates of dividend tax are also changing.
Tax will be paid on any dividends over £5,000 at the following rates:
- 7.5 per cent on dividend income within the basic rate band
- 32.5 per cent on dividend income within the higher rate band
- 38.1 per cent on dividend income within the additional rate band.
Unwelcome
This change was one of four unwelcome initiatives in the Budget relating to contractors.
The others were:
Advertisement - which will no longer apply to sole directors.
For more information, see HMRC's Dividend Allowance Factshet.
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Susie Hughes © Shout99 2015
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