Dividend tax break changes hit owner managed businesses Dec 20 2015

Do you currently pay yourself by both salary and dividends?

With the rules about to change on 6th April 2016 does it still make sense to incorporate? For many owner managed businesses the tax break on dividends was a key reason they set up a limited company.

At the moment basic rate tax payers don’t pay any tax on dividends. From 6th April 2016 this changes. You will get a £5,000 tax free dividend allowance but thereafter you pay 7.5% up to £43,000.

Higher rate tax payers will have to pay 32.5% tax (previously 25%).

Additional rate tax payers will pay 38.1% (previously 30.56%) above £150,000.

Consequently, low and middle earners who have dividends of more than £5,000 are the worst hit.

For some people there will be an advantage of accelerating dividends and having them paid before 6 April 2016, particularly for those who are going to be adversely affected by the 7.5% surcharge that’s coming in. Dividends are taxed on a receipts basis so it is easy to ensure you are taxed in the right year for you.

There are many other valid reasons to incorporate which we are happy to go through with you so you can make an informed decision on what actions to take.

Another option may be to transfer or gift some shares to your spouse or children. You need to take account of Capital Gains Tax & Inheritance Tax Rules and Reliefs before deciding if this is the right option for you.

We can help you decide what is best for your future.

If you want to plan for the change act now and contact us.

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