Tax Tip: Tax Free Dividends?

From 6 April 2016, the notional 10% tax credit on dividends is abolished and a £5,000 tax free dividend allowance is introduced. Dividends above this level are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).

Dividends received by pensions and ISA’s are unaffected and dividend income are treated as the top band of income. Individuals who are basic rate payers and who receive dividends of more than £5,001 will need to complete Self-Assessment returns from 6 April 2016.

A tax planning opportunity arises in so far as income can be split with spouses to utilise the £5,000 tax free allowance.