Trusts & Estates: Dividend Taxation
As announced in the Summer Budget 2015, from 6 April 2016 the rules to how dividends are taxed will be changed for individuals, trusts, and estates.
Please click here to read our article on how the changes will affect individuals.
The effect of these changes is that many trusts and estates will face a significantly higher income tax bill going forwards.
Under the current rules, dividend income arising on an estate after the date of death is taxed at the effective rate of 0%.
However, under the new rules the 10% tax credit and associated grossing up of the dividend will be abolished and all dividend income will be taxed at a rate 7.5%.
Trusts are entitled to a £1,000 standard rate band, and all income received within this amount is taxed at the standard rate.
Therefore, under the current rules, dividend income received within the standard rate is taxed at the effective rate of 0%, while any dividend income received in excess of the standard rate band is taxed at the effective rate of 30.56%.
Under the new rules dividend income received within the standard rate will be taxed at 7.5%, with any excess being taxed at 38.1%.
From 6 April 2016 individuals will be entitled to a £5,000 dividend allowance, enabling them to earn up to £5,000 of dividends tax free.
However, it should be noted that the allowance applies to ‘individuals’ only, so the trustees of a trust and personal representatives of an estate will not be entitled to this allowance.