What the dividend tax reform means for business owners and their pensions

The current dividend tax rules will be overhauled next year, resulting in a significant tax hike for a number of limited company owners.

At present, receiving dividends rather than a salary or bonus is a tax-efficient route for business owners to extract profit from their company. However, from April 2016, the way in which dividends are taxed will be changing. After the personal allowance has been taken into account, all individuals will be able to receive £5,000 of dividend income with no tax liability at all. Three new dividend tax bands will also be created, and will apply to all dividend income in excess of the new £5,000 allowance.

Here's how it will change:

Table

While the new rates remain below the main rates of income tax, shareholders who receive significant dividend income will pay more.
 
So, following the planned changes to dividend tax, could directors of small and medium organisations benefit from increasing their pension contributions as a way of reducing their tax bill next year?
 
To find out more, click here

 

 



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