Saving Income Tax on Dividend Income
Dividend are taxed change fundamentally from 06 April 2016, 7.5 percent tax on dividends earned of more than 5,00 pounds for basic rate tax payer, 32.5 percent tax for higher rate tax payer and 38.1 percent tax of additional rate tax payer.
Strategy to reduce tax on dividend are stated below.
Repaying share capital.
Repayment of share capital occurs when a company repays what was paid for shares to the shareholder, this might occur where a company wishes to reduce its share capital, the shareholder can use the repayment to invest in a new company.
For example, if Luke is the sole shareholder of LS Ltd, after trading for a year or more, with profit of 300,000 pound, instead of earning dividend and pay income, Luke can create another new holding company RSL Ltd via share of 300,000 pound from LS LTD
Another way to safe tax on dividend is through making pension contribution, up to 50, 000-pound investment is tax free in a tax year.
Using the companies retain earning to hold buy-to let properties, through this strategy the director will be able to safe income tax on dividend.
School/University fee planning-
Grand children school fees can be paid through company retained earnings as well, through that, director can safe income tax on dividend.
Other investment like Venture Capital Trust (VCT), Seed enterprise investment scheme (SEIS) and Social enterprise investment scheme(SEIS), investing in this scheme will also help director to safe tax on dividend