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On 6 April 2018 the tax free allowance for dividends has been reduced to £2,000. However, the personal allowance will increase to £11,850.
The dividend allowance is in addition to your personal allowance.
There are no dividend tax credits anymore. All dividends are deemed to have been paid gross.
The standard rate of tax on dividends is 7.5%.
Dividend tax bands are the same as those for personal tax, so you pay the higher rate of dividend tax (32.5%) on dividends when earnings are above £46,350 (personal allowance £11,850 plus £34,500).
For additional rate taxpayers (those earning above £150,000) dividends are taxed at 38.1%.
If you pay yourself the optimal salary of £8,376, we’ve shown below a couple of examples to give you an idea of how much income tax you would pay.
Below Threshold Example
|
Salary |
£8,376 |
|
Dividends |
£5,400 |
|
Total Income |
£13,776 |
|
Less Personal Allowance |
(£11,850) |
|
Taxable Income |
£1,926 |
|
Dividend allowance |
(£2,000) |
|
Tax Payable on: |
Nil |
|
Tax Payable: |
Nil |
Standard Rate of Tax Example
|
Salary |
£8,376 |
|
Dividends |
£30,000 |
|
Total Income |
£38,376 |
|
Less Personal Allowance |
(£11,850) |
|
Taxable Income |
£26,526 |
|
Dividend allowance |
(£2,000) |
|
Tax Payable on: |
£24,526 |
|
Tax Payable at 7.5%: |
£1,716.82 |
Higher Rate of Tax Example
|
Salary |
£8,376 |
|
Dividends |
£55,000 |
|
Total Income |
£63,376 |
|
Less Personal Allowance |
(£11,850) |
|
Taxable Income |
£51,526 |
|
Dividend allowance |
(£2,000) |
|
Tax Payable on: |
£49,526 |
|
Tax Payable at 7.5% on £34,500: |
£2,587.50 |
|
Tax Payable at 32.5% on £15,026: |
£4,883.45 |
|
Total Tax Payable: |
£7,470.95 |
For more detail about dividend thresholds please visit https://www.gov.uk/government/publications/income-tax-dividend-allowance-reduction
Helen Fielding
19 February 2018