Taxation of Interest and Dividends – Are you aware of all the new rules and allowances?

July 11, 2017

The tax regime for interest and dividends changed with effect from 6 April 2016 so the 2016/17 tax year is the first time you will see these changes.


Interest

  • Tax will no longer be deducted at source
  • New savings allowance of £1,000 for basic rate tax payers, £500 for higher rate tax payer but no allowance available for additional rate tax payers
  • Starting rate for savings remains at £5,000 but is only available where your non savings income is below £16,000

Dividends

  • No tax credit
  • New £5,000 allowance for all tax payers regardless of the level of your income
  • New rates are 7.5%, 32.5% and 38.1%

So how will these changes affect you?

  • If your total dividend income is below the £5,000 allowance up to 6 April 2018, there will be no tax due on your dividend income regardless of the level of your other income.
  • If your dividends exceed £5,000 and your total income exceeds the personal allowance of £11,000 it is likely you will pay more tax under the new rules that you would have previously
  • For basic rate tax payers – where income was covered by the personal allowance and dividend tax credit there was no requirement to submit a tax return. If there is tax now due on your dividend income you may need to complete a tax return –if you are unsure get in touch.

For examples of how this works see below:

 

2015/16 2016/17
 

Income

Salary/pension 10,000 10,000
Dividend 30,000 30,000

40,000


40,000

 

Personal allowance

 

(10,600)

 

(11,000)

Dividend allowance (5,000)
 

Taxable income


29,400


24,000

Tax due 2,940 1,800
Less tax credit (3,000) 0
 

Tax due


Nil


1,800