It’s an allowance, but not as we know it!

As you will be aware from our recent article;

the taxation of dividends is changing from April 2016.

The accountancy profession had been expecting HM Revenue & Customs (HMRC) to confirm that the £5,000 dividend allowance was an actual allowance which would reduce an individual’s total income. However, this is not the case. The allowance is in effect a 0% tax band for the first £5,000 of dividend income

What this means is that the first £5,000 of dividend income will be subject to tax, although at a rate of 0% and will still be included in the calculation of your taxable income.

Example – 2016/17

Joseph receives a salary of £24,000 and has dividend income from a large share portfolio of £26,000.

His total income is £50,000 and his tax liability will be:


Salary                                -       £24,000

Dividends                            -       £26,000

Total Income                       -       £50,000

Personal Allowance              -      (£11,000)

Taxable Income                   -       £39,000


Tax payable (Salary)


£13,000 x 20%                    -        £2,600


Tax payable (Dividends)


£5,000 x 0%                         -              £0

£14,000 x 7.5%                    -              £1,050

£7,000 x 32.5%                    -              £2,275


Total tax                               -              £5,925

If you are affected by the new rules, our tax team would be delighted to help you consider any planning that may be applicable. For instance, if you own your own company, you could advance dividends prior to 5 April 2016 or consider the ownership of the shareholdings between spouses and other family members. Alternatively, an ISA or pension may be appropriate.

For Darlington call Alan Moore or Lee Watson (01325 349700), for Durham call Nicola Bellerby or Lee Watson (0191 3842244) and for York called Alan Moore or Graham Richardson (01904 784400).