X-rated Summer Budget: Dividend shocker!

As you will be aware, there will be a significant change to the way that dividends will be taxed from April 6 2016. This includes the scrapping of the national tax credit, the introduction of a £5,000 0% dividend tax rate, as well as progressive new rates of 7.5%, 32.5% and 38.1% to the extent any excess falls in the basic, higher and additional bands.

It is intriguing as to why this present was served up in the Summer Budget and not announced in the earlier Budget. Unlike the IHT announcements, it is hard to see that this is something that would have been opposed by the Liberal Democrats. One is tempted to think this was an ‘off the cuff’ change – especially when one considers the sparse (and clearly incorrect in places) guidance issued by HMRC which has incredibly been published before the legislation.

On the assumption that there will be no withholding tax applied to the payment of dividends (and this would seem unlikely) this will also have a knock-on effect for non-UK resident shareholders. Currently, the 10% tax credit, although notional, covers a non-resident’s tax liability in full under basic principles.

If you have clients who would like to discuss alternative ways of extracting value from their businesses then please let us know. It is likely we can help.