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Information about the Dividend Allowance 2016-17

Article ID: 2622
Last updated: 22 Oct, 2018

 

Dividend Allowance from April 2016

From April 2016, the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

  • You will have no tax to pay on the first £5,000.
  • Over and above £5,000, the following rates apply for amounts falling under:
    • the basic rate band: 7.5%
    • the higher rate band: 32.5%
    • the additional rate band: 38.1%

Dividend issued prior to 5 April 2016 are paid net and attract a tax credit of 10%. The grossed up amounts are taxed at:

  • Basic rate band £31,785 @ 10% - 10% tax credit = 0
  • Higher rate band £31,786 to 150,000 @ 32.5% - 10% tax credit = 22.5%

Rates and Allowances

Example 1:                                               2016-17                                                  2015-16

Earned Income    Dividends Earned Income Dividends
Earned Income 0 £20,000 0 £22,222
Personal Allowance   (£11,000) (£10,600)
Taxable Total 0 9,000 0  £11,622
Tax Calculation
Dividends Allowance  (£5,000) 0
Basic rate £4,000 x 7.5% =  £300 £11,622 x 10% = £1,162.20
Tax Credit Nil £1,162.20

Dividend tax comparison

2016-17        

£ 300
2015-16 0
Increase £300

Example 2

                                                            2016-17                                                2015-16

Earned Income Dividends Earned Income Dividends
Earned Income £12,000 £13,000 £12,000 £14,444
Personal Allowance (£11,000) (£10,600)
Taxable Total £1,000 £13,000 £1,400 £14,444
Tax Calculation
Dividends Allowance (£5,000) 0
Basic rate £1,000 x 20% = £200 £8,000 x 7.5% = £600 £1,400 x 20% = £280 £14,444 x 10% = £1,444.40
Tax Credit Nil £1,444.40

Dividend tax comparison

2016-17       

£600
2015-16 0
Increase £600

Example 3                                     

                                                    2016-17                                                         2015-16

Earned Income Dividends Earned Income Dividends
Earned Income £23,000 £31,000 £23,000 £34,444
Personal Allowance (£11,000) (£10,600)
Taxable Total £12,000 £31,000 £12,400 £34,444
Tax Calculation
Dividends Allowance (£5,000) 0
Basic rate £12,000 x 20% = £2,400 £20,000 x 7.5% = £1500 £12,400 x 20% = £2,480 £19,385 x 10% = £1,938.50
Higher rate £6,000 x 32.5% = £1,950 £15.059 x 32.5% = £4894.17
Tax Credit Nil £3,444.40

Dividend tax comparison

2016-17       

£3,450.00
2015-16 £3,388.27
Increase £61.73

Example 4                                    

                                                    2016-17                                                         2015-16

Earned Income Dividends Earned Income Dividends
Earned Income £145,000 £20,000 £145,000 £22,222
Personal Allowance 0 0
Taxable Total £145,000 £20,000 £145,000 £22,222
Tax Calculation
Dividends Allowance (£5,000) 0
Basic rate £32,000 x 20% = £6,400 £31,785 x 20% = £6,357
Higher rate £113,000 x 40% = £45,200 £5,000 x 32.5% = £1,625 £113,215 x 40% = £45,286 £5,000 x 32.5% = £1,625
Upper Rate £10,000 x 38.1% = £3,810 £17,222 x 37.5% = £6,458.25
Tax Credit Nil £2,222.20

Dividend tax comparison

2016-17       

£5,435
2015-16 £5,861.05
Decrease £426.05

 

Article ID: 2622
Last updated: 22 Oct, 2018
Revision: 26
Views: 2402
This article was:  


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folder Tax Return Production -> SA100 Individual Return