Dividend Allowance

Dividend Allowance

What is the dividend allowance for the 2018/19 year? What are its effects and what therefore does it mean to me and my business?

Past and Current dividend allowances

The current dividend allowance for the 2018/19 tax year has reduced from £5,000 to £2,000. This will then determine the way in which a company or their accountants will plan for the future.

Many taxpayers at this point, may not be aware of the changes until the 18/19 Personal Tax Returns have been completed and submitted.

What does the changes mean for me?

The tax paid, on any dividend income, is reliant on the individual. This is then dependent on the overall income of the taxpayer. This will also determine the tax band where the first £2,000 will fall.

Basic Rate Tax Payer and the Dividend Allowance

Therefore if you are a basic rate tax payer:

The changes currently in place, will mean that the reduction reflects in an increase of tax paid of £225.

Higher Rate Tax Payer and the Dividend Allowance

Therefore if you are a higher rate tax payer:

The changes currently in place, will mean that the reduction reflects in an increase of tax paid of £975.

Additional Rate Tax Payer and the Dividend Allowance

Therefore if you are an additional rate tax payer:

The changes currently in place, will mean that the reduction reflects in an increase of tax paid of £1,143.

NB: if your dividend income falls between multiple bands, the above figures will differ!

Personal Allowances and where are they deducted?

Based on an example of £15,000 dividends and £40,000 salary

Personal Allowances are first deducted against the salary, as a result this will leave £27,500 (2019) available for all other income to mop up. Therefore any dividend income which falls within the basic rate band is £10,000 (£37,500 minus the £27,500 used) with the remaining £5,000 falling above the basic rate limit. The free or nil rate is allocated to the first £2,000 of dividend income. Then the next £8,000 will fall within the 7.5% rate. Finally the remaining £5,000 will unfortunately be taxed at the upper rate of 32.5%

Structures and Planning

It is imperative that planning and reviews take place irrespective of any circumstance. Early recognition of company structure, especially those who are affected by the lower dividend allowance should get in touch and get advice Patterson Hall.

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