Dividends shake-up to hit wealthy bosses

SOME of Britain’s wealthiest bosses are set to lose tens of millions of pounds from sweeping changes to the way dividends are taxed.

While Chancellor George Osborne has provided tax relief for those earning dividends of up to £5,000, to encourage small investors to invest, a new tax rate which will increase to a maximum of 38.1pc will hit the wealthy.

Chief executives with large stakes in their businesses, such as Sports Direct founder Mike Ashley and Sir Martin Sorrell, chief executive of marketing services firm WPP, face higher tax bills on dividends they earn.

Such higher taxes could dissuade entrepreneurs from setting up their own businesses, experts said.

They say new rates, are expected to raise about £7.5bn, may deter investment in private and listed companies.

Accountancy and tax advisory firm KPMG said the tax relief on the first £5,000 of dividends received by investors should encourage investment.

But it said the measures would hit wealthier investors ‘quite hard’. The group’s head of private clients in the UK, Dermot Callinan, said investors may switch to tax-free products.

It could also prompt them to set up companies to invest, rather than acting as individuals, because Osborne is reducing corporation tax.

‘I find it quite difficult to see how you can extract £7.5bn in tax from affluent investors without it changing their behaviour,’ Callinan said. ‘It will make running and extracting value from a private company more expensive.’

PricewaterhouseCoopers said tax rates on entrepreneurs who pay dividends in companies they own would increase nearly a fifth to 38.1pc, on top of corporation tax.

PwC tax partner Alex Henderson said: ‘One consequence is that it becomes relatively more attractive for entrepreneurs to sell their businesses and retire as it could reduce their tax rate by between 10pc and 18pc.’