There will be new changes implemented to taxation laws from April 2016. Pension and ISA dividends will not be affected by the new regime and will remain free of tax, but the new dividend rules are likely to have an adverse effect on company directors and share holders of small incorporated companies.

The new proposals will reportedly bring in an extra £2.54 billion in revenue for the year 2016/2017 tax year, with smaller amounts continuing to bolster the public purse in future years. The changes are an effort by the government to equalise tax laws for those who run unincorporated business.

Changes which will be introduced 

  • A maximum annual dividend allowance of £5,000 is too come into force after taking the personal allowance.
  • The existing 10% national dividend tax credit will be scrapped.
  • 7.5% on dividend income in the basic rate band
  • 32.5% (for higher rate band)
  • 38.1% (Additional rate band)

People with a low dividend income will see a reduction in there tax bill, but the new measures are likely to hit small business the hardest.