Taxation of Dividends – You may be aware of the changes to Taxation of Dividends announced by the Chancellor in his recent budget. If so have you made any changes to the structure of your investment portfolios? If not, then maybe you should!
From April 2016 – the notional 10% tax credit is being on dividends is being scrapped and instead a new £5,000 tax free divided allowance s being introduced. Any dividends over the £5,000 will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate tax payers, and 38.1% for additional rate tax payers.
The idea behind these changes is to ensure that ordinary investors with smaller portfolios and modest income will either pay less tax or the same as they are now (depending on the level of dividend paid).
The Chancellor hopes to raise an additional £2.5Bn of increased revenue from the changes announced.
You may hold a mix of investments; some may be geared for income, other investments for capital growth.
It would seem sensible re-arrange your investment portfolios’ so that your income base investments are held in your ISA or Pension ahead of April 2016.