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Halifax Courier - - This Week In Court -

Welcome to our monthly tax news­let­ter de­signed to keep you in­formed of the latest tax is­sues. In this is­sue we fo­cus on div­i­dend changes an­nounced in the Sum­mer 2015 Bud­get which out­lined the tax plans of the new Con­ser­va­tive gov­ern­ment to be in­tro­duced over the next 5 years. Changes to tax div­i­dends The Chan­cel­lor has an­nounced that from 6 April 2016 there will no longer be a no­tional tax credit as­so­ci­ated with div­i­dends re­ceived and the fol­low­ing rates will ap­ply af­ter a £5,000 tax free div­i­dend al­lowance: Ba­sic rate taxpayers - 7 ½% Higher rate taxpayers - 32 ½% Ad­di­tional rate taxpayers - 38.1%

This will mean that from 2016/17 in­di­vid­u­als will be able to re­ceive up to £17,000 tax free: Per­sonal al­lowance - £11,000 Tax free in­ter­est - £1,000 Tax free div­i­dends - £5,000 Im­pact of changes on fam­ily com­pa­nies

A com­mon strat­egy that we of­ten ad­vise to fam­ily com­pany di­rec­tor/share­hold­ers is that they ex­tract prof­its from their com­pany by way of div­i­dends in­stead of pay­ing them­selves a salary. This is be­cause there are no na­tional in­sur­ance con­tri­bu­tions on div­i­dend pay­ments and where the div­i­dend in­come falls within the ba­sic rate band (up to £42,385 for 2015/16) there is cur­rently no in­come tax on div­i­dends.

Where both hus­band and wife are di­rec­tors and share­hold­ers they will be able to pay them­selves a salary of £11,000 each and then div­i­dends of £5,000 each tax free. How­ever the next £27,000 of div­i­dends up to the new £43,000 higher rate thresh­old would be taxed at 7 ½ % re­sult­ing in in­come tax of £2,025 each be­ing payable for 2016/17. Un­der the cur­rent rules there would be no tax on such div­i­dends up to £42,385.

This mea­sure has been in­tro­duced to counter tax-mo­ti­vated in­cor­po­ra­tion to level the play­ing field be­tween trad­ing via a com­pany ver­sus an un­in­cor­po­rated busi­ness. Note that div­i­dends re­ceived in ex­cess of the £43,000 higher rate thresh­old will be taxed at 32.5 % but with­out a no­tional credit thus in­creas­ing the ef­fec­tive rate from the cur­rent 25% to 32.5%.

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Tak­ing the headache out of tax reg­u­la­tions

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