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A question that we are regularly being asked is ‘given the changes to the taxation of Dividends from the next tax year would it more tax efficient to declare additional Dividends and pay the resulting tax this year?’
There are a couple of considerations that need to be borne in mind:
However, for someone whose income for the current year is at or around the Higher Rate tax band of £42,385, additional Dividends would be taxed at an effective rate of 25.0% this year compared to 32.5% in 2016-17.
The only caveat being that if the total income for the year exceeds £100,000 the entitlement to a Personal Allowance tapers off at a rate of £1.00 for every additional £2.00 of income which would increase the effective tax rate to 35.0%
As a result, for someone with an income of £42,385 and allowing for the tax credit element, the maximum additional Dividend payment should be no more than £51,000.
As an example, for someone with an overall income of £60,000 in the current tax year, if an additional £20,000 of Dividends was declared and paid now, the resulting £5,000 of tax would be due for payment on 31st January 2017.
Similarly, for someone in the Additional Rate tax band, additional Dividends would be taxed at an effective rate of 30.56% this year compared to 38.1% next year.
If you would like any further information, please email us at email@example.com.
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