Dividend tax changes 2016
The Government is introducing changes to the way dividends are taxed which take effect from 6 April 2016.
Currently all UK dividends are paid with a 10% tax credit. For example if you receive dividend income of £1,000 it is assumed that £111 tax has already been paid, The total dividend is therefore £1,111.
From 6 April 2016 the 10% tax credit is being abolished and all UK dividend income will be paid gross. The rate of tax you then pay on dividends will depend upon your other taxable income. Every investor will instead receive a £5,000 tax-free dividend allowance and sums above that will be taxed at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
From April 2016 no tax will be deducted at source and so taxpayers will need to pay any tax due through self-assessment. We send an annual statement to all our customers which will help them calculate their dividend tax position and complete tax returns.
You'll only see the impact of these changes in your Dealing account. If you receive dividends into a SIPP or ISA you still won't face any further tax liability in relation to the amounts you receive.