Reduction in dividend allowance confirmed

Now that the second Finance Bill of 2017 has been published, we finally have confirmation that a number of measures announced earlier this year are to be included on the statute books. These measures were cut from the first Finance Bill of 2017 due to the snap election.

These measures includes confirmation that the reduction in the dividend allowance from £5,000 to £2,000 will come in to effect from April 2018. The £5,000 dividend allowance was introduced in April 2016 and replaced the old dividend tax credit. 

The tax rate for dividends received in excess of the dividend tax allowance have not changed and will be taxed at the following rates based on the recipient’s highest rate of income tax:

  • 7.5% for basic rate tax payers
  • 32.5% for higher rate tax payers, and
  • 38.1% for additional rate tax payers.

Planning note:

We would recommend that any shareholder directors that can benefit from the higher dividend allowance take advantage of the higher allowance before the end of the current tax year. Even with this reduction in the allowance, the high dividend, low salary strategy adopted to reduce NIC liabilities is still effective. 

Posted in Income Tax

Exeter Accountant MJ Smith & Co

Celebrating 25 years of excellence.

Free 1st Meeting
Fixed Fees
Free Support!

Find out more

Latest News

Can we claim for marketing, entertainment and subscription costs?

The self-employed are often concerned if an expense is allowable or not for tax purposes. In this article, we will …
Read More

Basic monthly tasks if you run your own payroll

One of the most time-consuming admin tasks associated with the running a small business can be dealing with the payroll.Generally …
Read More

The end of credit card payment surcharges?

From 13 January 2018, it will become illegal for any business to charge a fee in addition to the advertised …
Read More

Twitter Feed