How will the new dividend tax regime affect me?

From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

This means that you will not pay any tax on the first £5,000 of your dividend income, irrelevant of what other non-dividend income you have.

You will pay tax on any dividends you receive over £5,000 at the new tax rates as follows:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income with the additional rate band

From April 2016 these rates are applied to any dividend income actually received above £5,000. This excludes dividend income paid within an ISA which will continue to be tax-free.

Example

“  I have non-dividend income of £8,400, and I receive dividend income of £30,000 which is not held in an ISA. Please advise? ”

With a Personal Allowance of £11,000 for the 2016/17 tax year, £2,600 of the dividends fall within the personal allowance and are therefore under the threshold for tax. £5,000 then falls with the new Dividend Allowance which leaves £22,400 dividend income to be taxed at the Basic Rate of 7.5%.