Dividend tax changes not a simple picture

Taxation of Dividends

Dividend tax changes not a simple picture

George Osborne announced in the recent summer budget a plan to change the taxation of dividends. We still don’t know all the fine details and we won’t until the publication of the finance bill. Already though the proposals have come under scrutiny by the accounting profession and it’s clear that the picture that is emerging is a more complex one than you might imagine.

Taken at face value you might assume that this means all owner managers who take dividends will be burdened with a significantly higher tax liability in 2016 than in 2015. The reality is quite different.

Depending upon the amount of profit earned the tax increases can be significant or marginal and the sweet spot is probably not where you would imagine.

It turns out that up to about £18,000 profit you would see no tax increase at all. Above this level of profit and up to £47,000 the additional tax liability increases but it then starts to decrease reaching a minimum of just £137 at a profit of £58,000. Above this level of profit the tax liability increases again.

This effect is shown in the graph above.

So it’s a complicated picture and perhaps one you weren’t expecting to see. If you’d like to talk through the proposed changes on taxation of dividends and how they might effect you please call on 01227 763400.

 

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