New Dividend Tax

May 11, 2021 | Blog post


From 6th April 2016 a 7.5% dividend tax will come into play. For those who manage to avoid paying higher rate tax it will still be possible to have the same “take home pay”.

Previously a dividend tax credit of 1/9th was added to the net dividends taken. From 6th April 2016 this is abolished.

The basic rate tax band is to be extended to £43,000.

On a minimum wage of £8,100 this leaves room for a net dividend of £34,900. The first £5,000 of dividends received by each shareholder is exempt from tax.

In this example £29,900 is therefore taxable at 7.5%.

The individual will have tax of £2,242 to settle via their personal tax return in January 2018.

The take home pay is therefore £40,758 (£43,000 – £2,242).


Higher rate tax payers are conferred the same £5,000 exemption as for basic rate tax payers.

Once the £43,000 threshold is breached, by a combination of gross salary and net dividends, then the marginal rate of tax increases from its current level of 25% to 32.5%.

Therefore consideration should be given to taking dividends now, if you are habitually exposed to higher rate tax.

There is a genuine tax saving provided you don’t breach the £100,000 total income trigger, where personal allowances are withdrawn.

For those in receipt of child benefit the £50,000 threshold would also be a dis-incentive.

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