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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