From the beginning of the new tax year, 6th April 2016, there has been a notable change to the way in which dividends are taxed, the introductions of the Dividend Tax Free Allowance is available to anyone who has a dividend income.
The Dividend Allowance means that no matter how much dividend income you should receive, the first £5,000 is free of tax. After the first £5,000 the amount of tax you will pay on dividends is as follows;
It should be noted that all dividend received in pension funds that are currently exempt from tax will remain this way and the same applies to dividends received from shares held with the tax efficient wrapper of an ISA.
After the Personal Allowance has been taken into account (£11,000 if you’re eligible for the whole amount) all individuals can receive the first £5,000 of dividend income with no tax liability at all.
For example, if your entire income is £16,000 or less, you won’t pay any tax at all. The first £11,000 of income is free of tax due to the 2016/17 Personal Allowance and the first £5,000 of Dividend Allowance is also free of tax.
If you would like to know anything further about the new dividend tax rules or you’ve any other financial question then feel free to get in touch using the form below