Tax expert Peter Rayney casts his eye over the proposals to raise the dividend tax rate and the introduction of a new tax-free £5,000 allowance announced in the Summer Budget and asks whether it will simply force owner managers to change their behaviour
Tax pundits have been telling us for many years that income tax on dividends would increase. That moment finally arrived in the Summer Budget 2015 but we never thought it would be like this.
Our beloved imputation system – designed to prevent double taxation of corporate profits – will be consigned to the fiscal dustbin on 6 April 2016.
The Treasury points out that this regime was ‘designed more than 40 years ago when corporation tax was 50% and the total bill on dividends for some was over 80%’. Similarly, the (non-reclaimable) 10% tax credit that has been carried with dividends since April 1999 will be scrapped.
In its place, Chancellor George Osborne unveiled a progressive series of dividend tax rates that will ‘kick-in’ from 2016/17. However, dividend income will benefit from a new £5,000 tax-free allowance.
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