12 Top Tax Tips to Easter – #2 Plan your dividend income

top tax tips 2The run-up to Easter is the perfect time to consider tax planning opportunities and to put in place strategies to minimise tax before the new tax year starts on 6th April 2016. That’s why we have launched a series of 12 tax tips to help you mitigate your tax bill.

Good planning and careful timing are critical if you want to maximise tax reliefs or minimise the tax bill on a transaction or investment, and to avoid falling foul of the system of penalties and interest levied by HM Revenue & Customs (HMRC).

As the Chancellor has announced higher tax rates on dividends from 6 April 2016, our second tax tip focuses on planning dividend income.

  • #2 Plan your dividend income

From 6 April 2016, dividend tax rates increase by 7.5% but there will be a £5,000 ‘tax free’ dividend allowance. If you receive a small level of dividends, you may be better off.  However, if you have a large investment portfolio or are a business owner using dividends instead of salary, you may be worse off, so consider the following:

  • Keep your dividend income below £5,000 p.a. in 2016/2017
  • If you receive large dividends, take advice about bringing forward a dividend and paying it before 5 April 2016 to save tax.
  • Combining a low salary with dividends can still achieve significant tax savings for the owner/director.
  • Investment in qualifying VCT’s can produce exempt dividends
  • Consider offshore bonds to protect the excess dividends from an immediate tax charge as they arise. These bonds can defer the tax until the bond is surrendered when you are a lower rate or non-taxpayer.

Tax is a complex matter, so we recommend that professional advice is sought when considering any of the above. Our highly qualified and experienced tax team would be happy to discuss your tax affairs with you.

If you have any questions regarding your tax affairs, please do not hesitate to contact our tax team on 01491 579740.

View our other tax tips