If you are a company owner, you will be used to taking funds you need from your company in the form of a small salary. With anything extra paid as dividends, or perhaps as rent or interest.
For some years the first £2,000 of dividends received by each taxpayer has been tax-free. However, that is about to change. Instead from 6 April 2023 only the first £1,000 of dividends received by each taxpayer in a year will be tax-free and from 6 April 2024. This dividend allowance will be cut to £500 per year. Where your family company pays dividends to shareholders (such as family members), up to their dividend allowance, you need to review this strategy for 2023/24. We can help you with this.
As a result taxpayers who receive dividends in excess of their dividend allowance need to inform HMRC and complete a tax return to declare that unearned income and pay the tax due.
The taxable dividend income is treated as falling into the taxpayer’s highest tax band. Where it is taxed at these rates in 2022/23:
• Basic rate band: 8.75%
• Higher rate band: 33.75%
• Top rate band: 39.35%
Also the dividend tax rates were increased on 6 April 2022. Unless changed again in the Budget on 15 March 2023, they will be the same in 2023/24.