New dividend tax rules could hamper wealth pensioners

New dividend tax rules could hamper wealth pensioners

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Acumen gives you an overview of the changing dividend tax rules and how they could hamper wealthy retirees and investors who rely on dividend income. Underlining, now more than ever, the importance of intelligent and up-to-date investment advice.

As we reported in the immediate aftermath of Chancellor George Osborne’s first Conservative only Budget announcement, there are changes on the horizon to the dividend tax rules. Given a brief period to analyse the proposals, many commentators are now reporting that the proposed changes could significantly impact wealthy pensioners and investors.

Under the current dividend tax system, basic rate taxpayers do not pay tax on the dividends they receive outside their ISA or pension. Whereas, higher rate taxpayers pay 25%, and additional rate taxpayers pay 30%. This is enforced through the dividend tax credit system via investors’ annual tax returns.

However, as of April 2016 an all-new £5,000 annual tax-free dividend income allowance will replace the dividend tax credit system.

How will this impact investors, pensioners and sole traders?

Higher and additional rate taxpayers whose dividend income remains below £5,000 will now pay zero tax on their dividend income. That could lead to potential annual savings of £1,250. But for anyone falling outside that bracket, the story looks somewhat bleaker.

“In contrast, basic rate taxpayers whose dividend income exceeds £5,000 and those investors with portfolios in excess of £140,000 will potentially pay significantly more under the new regime,” said Interactive Investor. “This means that wealthy pensioners who rely largely or solely on dividend income to fund their retirement could see their tax bills rise significantly under the new rules.”

“Those with large portfolios – according to the chancellor, those worth more than £140,000 – also stand to lose out, as the benefits of the new dividend personal allowance are over-ridden by significantly higher tax on their additional dividends above the £5,000 threshold,” they added.

Small business owners who choose to pay themselves an income in the form of dividends from their own companies will also feel the pinch.

Acumen’s account on matters

Acumen’s Managing Director and pensions specialist, Angela Maher, said: “Wealthy investors with lots of stocks and shares are likely to be hit in the pocket by the Chancellor’s new dividend tax regime. So too will sole-traders who would have previously paid themselves and income in dividends.

“Furthermore, those who may have retired early, and are reliant on their investments in lieu of the state pension, are also likely to find that their living income is impinged. These new rules also effectively discourage investors and budding entrepreneurs from being overly ambitious.

What this highlights to us is that, now more than ever, investors should seek out independent financial advice if they feel that their current investment portfolios need revisiting. Our advisers at Acumen are ready and willing to offer guidance that will ultimately enable you to protect your nest egg

To discuss your pension plans with one of our dedicated team please contact us today on 0151 520 4353 or email

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