Dividend Tax has long been a concern for British entrepreneurs, especially those with overseas investments.
Whether you’re receiving dividends from a property venture in Spain or shares in a US-based business, your tax liabilities are already significant and complicated to manage.
However, with the upcoming Budget on 30 October, the Government has hinted at possible further increases to Dividend Taxes.
So, what does this mean for you, and how can you protect yourself from being hit harder?
Why the Dividend Tax changes matter
Dividend Tax applies to any income you receive from your shares – whether they’re in UK businesses or overseas entities.
Right now, the rates are set at 8.75 per cent for basic rate taxpayers, 33.75 per cent for higher rate taxpayers, and 39.35 per cent for additional rate taxpayers.
These are already steep compared to a few years ago, and all signs point to an increase in these rates from the Labour Government.
With rising public spending and the Government under pressure to find new sources of revenue, it’s likely Dividend Tax will be targeted in the upcoming Budget.
The impact on entrepreneurs with overseas investments could be significant, particularly if your investments are structured to pay you dividends regularly.
Practical steps to reduce your Dividend Tax liabilities
Now is the time to think strategically about how you manage your overseas investments and the dividends they generate.
Here are a few practical tips:
- Use your Dividend Allowance: The first £500 of dividend income is tax-free. However, the Government may change this so you might want to think about using it to the full this year.
- Consider salary vs. dividends: Depending on your situation, it might be worth taking more of your income as a salary or through other means rather than dividends, especially if you anticipate an increase in Dividend Tax. You’ll pay Income Tax on a salary, but it could still be a cheaper option than higher Dividend Tax rates.
- Explore tax-efficient investments: If you’re earning significant dividend income from overseas, now might be the time to review your portfolio and explore more tax-efficient investments. For example, UK-based venture capital trusts (VCTs) or Enterprise Investment Schemes (EIS) offer significant tax breaks and could help reduce your overall tax burden.
- Make use of ISAs: If you’re not already doing so, use your ISA allowance. Any dividends earned within an ISA are free from tax. For larger portfolios, the tax savings over time can be considerable.
- Timing is everything: If you know a change to Dividend Tax is coming, it might be worth considering bringing forward any dividends due in early 2024. This way, you can pay at the current rates and avoid any increase post-Budget.
With all these strategies, remember there are complex international tax rules at play and a small oversight could leave you exposed to unnecessary tax.
An international tax adviser can help you navigate these changes, ensuring that your global investments are structured to minimise your liabilities.
While it’s impossible to predict the exact details of the 30 October Budget, the likelihood of further Dividend Tax increases means now is the time to get ahead of the game.
By reviewing your dividend income, exploring alternative strategies, and consulting with an adviser, you can protect yourself from potentially higher taxes and continue to make the most of your overseas investments.
Being proactive is key.
The Government may be eyeing Dividend Tax as a way to raise revenue, but you have options to keep your liabilities in check.
