Dividend Taxing: All Change from 2016
You may have heard of new changes made to the current dividend taxing system as announced in the summer budget 2015. Under the current dividend taxing system, taxpayers who fall under the basic-rate category are not subject to any additional tax due to the existing tax credit system. Taxpayers within the higher-rate category pay 25 percent, while taxpayers that fall under the additional-rate category pay 30.56 percent. The new system, as outlined in the summer budget 2015, could affect taxpayers in all three categories in terms of how much they pay in tax. Some may pay more in tax while others less.
The New Regime
Under the new system the £5000 in earned income will not be subject to tax. However, anything in excess of that will be taxed according to your income category. Basic-rate taxpayers will be taxed at 7.5 percent, higher-rate taxpayers will pay a rate of 32.5 percent and additional-rate tax payers pay a rate of 38.1 percent. Under this system, it is possible that some taxpayers that previously enjoyed tax free dividend income may end up paying more under the new tax regime. Also, tax-payers who belong to the higher income categories may pay less dividend tax.
How Can You Minimise Taxes Under the New System?
• Make full use of the £5000 allowance given under the new tax rules. • Couples should take advantage of the benefits by allowing dividend income to be paid in the name of the spouse who earns lower income. • If you have an ISA account it is better to receive your income in that account as you will not be subject to earnings in excess of £5000 amount. • You can also reduce your other sources of income as dividends are taxed as the top slice of income. Couples can take advantage of this when a higher earning spouse transfers their assets under the name of the lower earning spouse. The net effect being a possible reduction in additional tax payable on dividend income. • You can also be smart with the varying levels of yields in your portfolio. The stocks that earn higher amounts can be protected from taxation in an ISA account while stocks with lower yields can be earned tax free under the new tax regime.
If you would like more information about the changes to the system which takes effect from next year, you can get in touch with MCC Accountants. Their representatives can advise you on how the changes will affect you personally and how you can take full advantage of it. MCC Accountants has substantial experience in business taxation and can assist you in paying the right amount of taxes.