Peter Vaines returns with the latest news from the world of tax
The change in the taxation of dividends announced in the Summer Budget will be a serious revenue raiser. In other words, this is a real tax increase. Strangely, it seems that the only people who will benefit are high-earning taxpayers with very modest dividends. The first £5,000 of their dividends will be exempt, whereas at the moment, they are chargeable at an effective rate of 25% or 30.6%.
It sounds like this £5,000 is good for everybody but it is no benefit at all to basic rate taxpayers. Their dividends are effectively exempt anyway because they are covered by the tax credit.
For the small business it may be pretty irritating. A husband and wife with a small business drawing salaries of £10,000 and dividends of about £30,000 each would have no income tax liability at all on their combined income of £80,000. Next year, each will have £25,000 of their dividends taxed at the new 7.5% rate.
For higher-rate taxpayers with significant dividends who were used to paying 25% on the
