In one of the key points to emerge in Wednesday's Summer Budget, the Chancellor said the dividend tax credit would be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers.
George Osborne said it would “simplify the taxation of dividends” but some have criticised it as an attack on entrepreneurs, while Financial Planners have predicted bosses of smaller firms will review how they are paid.
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The Government will set the dividend tax rates at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers but there will be no tax credit.
Danny Cox, Financial Planner at Hargreaves Lansdown, said: “In response to increasing numbers of questions from investors we now have a simple dividend tax calculator on our website. The aim behind this is to help illustrate the changes to dividend taxation in April 2016.
“The increasing number of queries from clients is evidence of the complexity of the current system. Apart from the wealthiest, the biggest losers are likely to be basic rate taxpayers who have dividends over £5,000 a year.
“There may not be many investors who fall into this bracket, but the Chancellor’s main target is the substantial numbers of business owners who currently mix their remuneration between salary, bonus and dividend.
“We can expect to see businesses bring forward dividends to the current tax year ahead of the change. Pension contributions also look an increasingly attractive way for business owners to take profits.”
The company has published tables showing the rates:
