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Dividends 2017


When taking out dividends from your business, you must be aware of how much tax you will have to pay.

The tax free dividends allowance stands currently at £5,000. Anything above this will attract dividend tax.

The rates of tax are:

  • The first £5,000 of dividends are tax free

  • Dividends falling within basic rate tax – 7.5%

  • Dividends falling within higher rate tax – 32.5%

  • Dividends falling within the additional rate of tax – 38.1%

How do you work this out?

If you are taking other income, such as rental income, then you will be subjected to more dividend tax – this is something to discuss with your accountant.

Here we will assume that you are not receiving any other income.

Paying yourself a salary can also be tax free as long as you pay yourself no more than £680 a month (to do this you must register as an employer and file an RTI each pay period).

Paying a salary of £680 x 12 = £8,160 (tax free).

You can then pay the £5,000 and the remainder of your personal allowance as tax free dividends.

Dividend allowance (£5,000) + personal allowance (£11,500) = £16,500

To work out the reminder of your personal allowance, you subtract your salary of £8,160 against £16,500. The remainder of your personal allowance is therefore £8,340.

Anything above this amount means you will have to pay tax

For the next £28,500 of income you will pay 7.5% tax.

How do you work this out?

So you can take

  • a salary of £8,160

  • dividends of £8,340 + £28,500 = £36,840

  • Total income of £45,000

  • Dividend tax of £28,500 x 7.5% = £2,137.50

The same rules apply with the higher tax rates and can be worked out in the same way.

Note if your income exceeds £100,000 you should obtain a personalised illustration as your personal allowance is restricted at that level.

If you would like more information on this, get in touch and we will offer you some general advice.

Disclaimer – this information is correct at the time of publication and is provided as general information not to be relied upon without a discussion with a suitably qualified professional.

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