Preparing for the imminent changes to dividend tax
To minimise short and long-term impact of the imminent dividend tax changes, as announced in the second budget of 2015, company directors may want to think about or take advice on what this might mean for them.
The changes, due to be brought in on 6th April this year, means that taking dividends of more than £5,000 (per shareholder) will incur a tax increase of 7.5 per cent, which will of course mean a higher tax bill.
In family business ownership where a husband and wife are shareholders and each receiving dividends in additional to a tax free personal allowance, this can make a difference to their tax liability.
For instance, if both were taking an £8,000 (tax free from personal allowance) and an additional £15,000 each in dividends. This will take their tax liability from zero to £750 per shareholder – £1,500 in total.
There are some ways to address this which business owners may want to consider. Short term, it is worth thinking about bringing forward a dividend payment before the increases apply.
Then, perhaps reduce future dividends to avoid impact on future tax bills if avoidable. Before taking this route, the availability of business funds for future investment or other responsibilities needs to be considered to avoid leaving the business short or causing detriment to future growth plans.
We believe taking income as dividends is still a tax efficient method to retain continued control over when and how much is taken to suit a personal position. However, any businesses wanting further information on the changes or advice on the best course of action for their business are invited to call us on 01827 54944.