Budget: Entrepreneurs lose out from changes to tax on dividends

July 08, 2015

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The changes to the taxation of dividends remove the final vestiges of the system introduced in the early 70's where a credit was given for tax paid by the company.  The system aimed to relieve the impact of the double taxation of companies and shareholders on distributed profits. Overall the Chancellor is expecting to raise £3.5bn from the change over the next 5 years.

There are going to be some big losers as a result of this change. Entrepreneurs who pay out dividends in companies they own will see their tax rate increase by nearly 20% to 38.1% which is on top of the 20% paid by the company.

It remains to be seen what effect this tax rise will have on enterprise. One consequence is that it become relatively more attractive for entrepreneurs to sell up their business and retire as it could reduce their tax rate by between 10 and 18%.