On 17 August 2015 the UK tax authority HMRC issued a fact sheet explaining the new rules for taxation of dividends received by individuals.
With effect from April 2016 the current dividend tax credit is to be scrapped and a dividend allowance of GBP 5,000 will be available to individuals with dividend income. The allowance will be available regardless of the level of non-dividend income of the individual.
Dividend income of individuals will be taxed at a rate of 7.5% for dividend income within the basic rate band; 32.5% for dividend income in the higher rate band; and a rate of 38.1% for dividend income falling within the additional rate band. Dividends received within individual savings accounts (ISAs) and dividends received by pension funds will continue to be tax exempt.
Although the first GBP 5,000 of dividend income will be tax exempt the dividend income will still be taken into account in determining which rate band the total income of an individual falls within for income tax purposes.
