Dividend Tax Planning : How to Prepare for the 2016/17 Tax Increase

In the July 2015 Budget it was announced that the tax treatment of dividends will be completely changed at the start of the 2016/17 tax year on 6 April 2016. Dividend tax credits will be abolished, so it will no longer be necessary to gross up your dividends to calculate your tax. All tax calculations will work with the amount of dividend actually paid and will therefore be a lot simpler. That's the good news. The bad news is that new tax rates for dividends have been announced that are 7.5% higher than the existing rates. The first 5,000 of dividend income will, however, be tax free thanks to a new "dividend allowance". This guide explains how dividends will be taxed next year and what action you should take this year to reduce your tax. In particular, we examine whether company owners should pay themselves a bigger dividend this year before the tax rates go up and how much tax you are likely to save.