Summer Budget: Dividend taxation changes risks discouraging high-income savers

Summer Budget: Dividend taxation changes risks...

For the Government to target almost £7bn in revenues from changes to the tax treatment of dividends, today’s announcement clearly represents a significant tax increase for people with high incomes.

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Dermot Callinan, head of private client at KPMG, said:

“For the Government to target almost £7bn in revenues from changes to the tax treatment of dividends, today’s announcement clearly represents a significant tax increase for people with high incomes. 

“While a million people who receive dividends will see an effective £5,000 tax free allowance, the changes will increase top rate tax payers’ contributions by at least 25 per cent. For all that the Chancellor wants to encourage saving, the new tax structure could discourage many high income investors from doing so.

“Savers should remember, however, that they can still receive up to £15,240 tax free through ISAs.”

Marginal (top) tax rate of income tax

Tax rate 20% (basic rate)  40% (higher rate) 45% (additional rate)
Effective dividend tax rate now 0 25% 30.56%
Post April 2016 (after £5,000 allowance*) 7.57% 32.5% 38%

* £5,000 allowance is equal to a 3.5% dividend on shares worth £140,000

 

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