Dividend Taxation

The proposed changes to the taxation of dividends will be unwelcome news for many family businesses, as this will typically result in increased tax liabilities of approximately £2,000 per family member.  For example, a husband and wife with two children who all work full time in the business are likely to be looking at an extra £8,000 of tax per annum, assuming that they run their business through a limited company and pay themselves via a combination of salary and dividends.

The proposed changes are due to take effect from 6 April 2016 and in summary, will effectively impose an extra 7.5% tax charge on dividend income.  The good news is that the first £5,000 of dividend income will be tax-free, such that many individuals with investment income in the form of dividends (e.g. from stock market investments) will be unaffected by this change, particularly if their investment portfolio is below £150,000.  Likewise any share investments that are held within ISAs and pension schemes will be unaffected by this change, irrespective of the amount of dividend income that is received.

Any family businesses that are contemplating paying large dividends in the next year or two would be well advised to pay these before 6 April 2016, so as to escape this new 7.5% tax charge.  Likewise, any individuals who have loaned significant amounts of monies to their company may wish to consider paying themselves interest (as opposed to dividends) from 6 April 2016 onwards.  In addition, anyone aged 55 or over may wish to consider taking advantage of the new pension changes, as a means of extracting monies from their family company.

To read how these changes might affect you in more detail please click here.

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Oct 18

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Alison Johnston has assisted us over the years with strategic planning for our legal practice. She has helped to point us in the right direction for external assistance other than financial help, and has enabled us to focus our minds on where we want our business to grow and succeed.
-- Ian Snipe, Snipelaw