Dividend Income and Self-Assessment
Background
Prior to 6th April 2016, due to the way dividends were taxed, providing a taxpayer fell into the basic rate band they would have no further tax to pay on this income. From 6 April 2016 this is no longer the case and some individuals may need to submit a self assessment return for the first time.
On 6th April 2016 we saw the introduction of the new dividend allowance, the abolition of the dividend tax credit and a change in the rates of dividend tax.
Detail
Under the new rules, all taxpayers can receive £5,000 in dividend income completely tax-free regardless of their other income. Dividends above this amount are subject to the new tax rates of 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
It has been announced that from 6th April 2018, the dividend allowance will be reduced to £2,000.
This change means that many individuals who have not previously had to complete a tax return will now have to register for Self-Assessment in order to declare and pay the tax on their dividends. With the reduction in the allowance next year it is anticipated that even more will need to register for the Self-Assessment system, in particular those with investment portfolios and those with shares in family businesses.
If you have received dividend income over £5,000 in 2016/17 and are not already in the self assessment system you need to act now and complete a tax return in order to declare the income and pay the tax due.
If you are in any doubt as to whether you need to complete a tax return or you would like assistance in registering and preparing your return please contact our Tax Director, Jenny Marks, for more information.
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