The 10% tax credit on dividends was abolished on 6th April 2016 and, in its place, a new tax-free Dividend Allowance was introduced for everyone.
Any dividends received in excess of the Dividend Allowance (currently £2,000) and any unused Personal Allowance (currently £11,850) combined will be taxed at varying rates (see table below). Individuals who receive dividends of more than £2,001 may need to complete self-assessment tax returns.
Tax band* | Dividend Allowance | Personal Allowance | Any dividends received in excess of these amounts will be taxed at: |
Basic rate taxpayers | £2,000 | £11,850 | 7.5% |
Higher rate taxpayers | £2,000 | £11,850 | 32.5% |
Additional taxpayers | £2,000 | £11,850 | 38.1% |
Please note: the Personal Allowance on £11,850 should not be confused with the Personal Savings Allowance.
What does this mean for Chelsea's clients?
Example 1
Example 2
Example 3
Example 4
All a bit complicated?
Remember that an ISA wrapper negates the need for any of these considerations:
Please note that the amount of dividend income paid in an ISA will not increase as a result of the tax credit being abolished. The 10% credit was entirely notional and the changes simply mean that the tax credit will no longer be reported.
Read more about the benefits of the ISA.