The dividend allowance is to fall from £5,000 to £2,000 from 6th April 2018.

This will impact anyone who receives dividends, either from investments or as part of a profit extraction strategy from a personal or family company.

All Taxpayers are eligible for the ‘Dividend Allowance’.  Once the Dividend Allowance (and the Personal Allowance) has been used up, to the extent they fall within, the Dividends are taxed as follows:

  • Basic Rate –  5%
  • Higher Rate – 5%
  • Additional Rate – 1%

Where shareholders in personal or family companies have taken dividends less than £5,000 in 2017/18, and where retained profits are sufficient, consideration should be given to taking any unused dividend allowance for 2017/18.

Assuming that dividends of at least £5,000 continue to be paid in 2018/19 (and the personal allowance utilised elsewhere), the reduction in the dividend allowance will increase the tax payable by a basic rate taxpayer by £225, a higher rate taxpayer by £975 and an additional rate taxpayer by £1,143.

If you would like to know more about tax-efficient profit extraction, and the benefits of planning ahead, please call us on 01275 852255.