Dividend Income and Shares in Family Companies

This newsletter may be of benefit to you if you are married and own shares in your own company.

You may be aware from previous newsletters over the past year that dividends are being taxed differently in the current tax year to 5th April 2017. Essentially, now, after a nil rate band of £5,000.00, dividends above that level are attracting personal tax under self-assessment.

It’s all change in 2016/17. There will be a nil rate band of £5,000, which means that the first £5,000 of dividends will be tax free. Dividends will then be liable to tax at 7.5% in the basic rate band, 32.5% in the higher rate band and 38.1% in the additional rate band. (In 2016/17 £11,000 will be the tax free personal allowance. The next £32,000 of income will constitute the basic rate band, and so income above £43,000 will fall into the higher rate band. Income above £150,000 will be taxed at the additional rate.)

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It is the £5,000.00 nil rate band that we are primarily interested in for the moment. If you own the share(s) in your own company and are married, you may benefit as a couple by awarding some share(s) to your spouse. Given the right share structure, this would enable you to pay your spouse a dividend of up to £5,000.00  tax free each year, starting with the current tax year to 5th April 2017. This would reduce the amount of tax you have to pay overall as a couple.

Please get in touch if this would be of interest to you, so that we can discuss the next steps. Let me know if you have any questions.