Changes to Dividend tax – Summer Budget 2015

In his budget speech,Chancellor George Osborne has just announced a major overhaul of how dividends are taxed.

The Dividend tax credits system which the Chancellor described as ‘archaic’ will now be replaced by a tax-free allowance of £5,000 of dividend income for all taxpayers.The rates after the allowance has been used up will  be 7.5%, £32.5% and £38.1%.

Essentially, the changes are as follows:

  • First £5,000 received in dividend income will be tax free
  • Dividend income exceeding £5000 will be charged at 7.5%, 32.5% and 38.1% depending on the amount of dividends you receive

Dividends paid within ISAs and pensions are unaffected by these changes and will remain tax free.With these changes coming into effect next year, investors could potentially save an additional £17,000 per year on top of their current ISA limit.

Osborne said: ‘It is an important reform. The dividend system has not changed despite sharp reductions in corporation tax.

Osborne said the changes would mean around 85% of investors would pay less tax.

The changes will come into force next year.

To see how dividends are currently taxed, have a look at this article ““.

See the changes to the Pension system as mentioned in the budget here “

Read more articles on other taxes that affect you and how you can save on them here “