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Dividends and the Higher Rate Taxpayer |
| A non, lower rate or basic rate taxpayer has no further income tax to pay on any dividends received (although the 10% tax credit on those dividends can, now, no longer be recovered by a non taxpayer). This means that dividends can be a very tax efficient way of extracting profits from a company. |
| However, for the higher rate taxpayer, there is additional tax to pay - amounting to 32.5% of the overall gross amount. |
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For example: Mr Smith, a higher rate taxpayer, receives a cheque for £9,000 as a dividend from Familyco Ltd. On his tax return this would be included as £10,000 income (to incorporate the 10% tax credit). The tax liability on this would be as follows: Tax @ 32.5% = £3,250 Less deducted at source £1,000 Further tax payable £2,250 (i.e. 25% of the cash received) |
| Where a company has more than one shareholder, it may be beneficial for dividends to be paid to one shareholder but not another, to prevent them from going into the higher rate tax band. This can be done by structuring the share capital of the company into more than one class of share or by considering dividend waivers. If this is of interest to you, our tax team will be pleased to assist you in structuring your affairs in this manner. |
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