Planning for the 45% tax rate

News: July 2012

Planning for the 45% tax rate

In the May edition of Tax Tips & News we gave some preliminary ideas for taking advantage of the reduction in the top tax rate from 50% to 45% as from 6 April next year. We will have a look at some other ideas in later editions, but what you should know is the effect it will have on the income tax payable on dividends, whether received from your own company or from investments.

These are the effective tax rates on the cash dividend received:

your tax rate effective tax
on dividends
20% nil
40% 25%
45% from 6/4/13 30.55%
50% to 5/4/13 36.1%

So if you pay tax at the top rate, a dividend of, say, £10,000 will cost you £3,610 in tax if paid in the current tax year, but if delayed until 6 April 2013 that goes down to £3,055. That is a tax saving of £555 or 5.55% – well worth having if it is possible to defer payment. No doubt quoted companies will plan their dividend dates carefully to help their personal shareholders.