Major changes to company dividends may affect your income
Simon Bruce explains the new rules in this issue’s Money Matters
April saw some substantial changes to the taxation of company dividends, which could increase the tax liability of directors and shareholders of limited companies. If you pay yourself dividends from the profits of a company you own then you could be significantly affected.
The Government has removed the 10 per cent dividend tax credit and replaced it with a flat £5,000 tax-free Dividend Allowance. Individuals who receive more than £5,000 from company dividends held outside tax-efficient plans such as ISAs could pay more tax.
For the 2016/17 tax year, higher-rate taxpayers will pay 32.5 per cent tax and those who pay the additional rate will face 38.1 per cent tax – on top of the 20 per cent paid by their company.
In general terms, higher rate tax payers will now be worse off than previously if they draw more than £21,660. Additional rate tax payers will be worse off if they draw more than £25,400. Doctors exceeding the applicable figure will need to choose whether to cap their dividends or pay more tax.
Is the trading structure of your practice still tax-efficient? Are you making the most of opportunities to manage your tax liabilities together with a spouse or partner?
Simon Bruce is Managing Director of Cavendish Medical – specialist financial planners for senior medical professionals in the NHS or private practice. For a second opinion on your finances, please contact us on 020 7636 7006. www.cavendishmedical.com
The content of this article is for information only and must not be considered as financial advice. Cavendish Medical always recommends that you seek independent financial advice before making any financial decisions.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The value of investments and the income from them can fluctuate and investors may get back less than the amount invested.