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Reminder of the taxation changes to dividends for Scottish taxpayers 2018

As the 2017/18 tax year is coming to an end, we wanted to remind you of the dividend taxation rate changes that take effect from 6th April 2018 as it will have an impact on the personal tax liability that will be due next January. In order to help with your tax planning, we have set out below how these changes may affect you and also the 2018/19 tax year rules.

If you are not a Scottish tax-payer, please click here as your tax rates and allowances may be different.

What are the current rates? 

Currently, in the 2017/18 tax-year, everyone receives a tax-free, £5,000 dividend allowance against any dividend paid per year. This dividend allowance is given in addition to your personal allowance of £11,500, so in effect each shareholder can take £16,500 tax-free. After this allowance, personal tax on dividends are taxed at 7.5% up to the higher rate limit.

If you have not yet discussed your personal situation with your accountant, please update your portal and get in touch prior to the tax year end, to ensure you have maximised your allowance.

What are the rates from 6th April 2018? 

Mainly due to the reduction of the dividends allowance from £5,000 to £2,000 effective 6th April 2018, and the adjustment to the higher rate threshold, the 2018/19 tax-year will be similar but with slightly different allowances as follows: -

Tax free dividends & salary @ 0%

£13,850

Basic rate @ 7.5%

Next £32,500 of dividends

Higher rate @ 32.5%

Next £103,650 of dividends

Additional rate @ 38.1%

All additional dividends

 

Income tax rates and bands 

 

Bands

Band name

Rates (%)

Up to £11,850

Tax Free Allowance

0

Over £11,850-£13,850

Starter Rate

19

Over £13,850-£24,000

Basic Rate

20

Over £24,000-£43,430

Intermediate Rate

21

Over £43,430-£150,000

Higher Rate

41

Above £150,000

Top Rate

46

 

In most cases this will mean that there will be a slight increase to the personal tax due, compared to last year. We calculate the cost of the reduction of the dividend allowance to be £225, although maximising your dividend earnings before higher rate tax, should result in an extra £1,050 in your pocket, after the tax has been charged. This is based on the understanding that you have sufficient profit in your company to pay the dividends, to the higher rate tax threshold.

It will be important to try and complete your personal tax return early so that there are no surprises when it comes to your January tax bill. If you would like an estimate of your likely tax, please ensure your portal is up-to-date and contact your accountant detailing any additional income that you earned, that was not from your limited company.

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