Let's look at UK Dividend Tax Rates for 2018! Not only that, but we'll also get into the Tax Allowances and Tax Thresholds for the 2018-19 tax year.
HMRC has provided an £11,850 personal allowance during this tax year and if you didn't use all of it on your other income like salary, self-employed or property income, you can use it for your dividends. This also stacks with the £2,000 dividend allowance.
Single director limited companies, such as contractors, freelancers or creators can use this to their advantage to take a decent amount of funds from their company without getting loaded with a massive tax bill on their self-assessment.
We'll go over a few different examples of how dividends are taxed in 2018. As the UK Dividend Tax Rates haven't changed since last year, it'll be 7.5% dividend tax in the basic rate threshold, 32.5% dividend tax in the higher rate threshold and 38.1% dividend tax in the additional threshold.
Overall the most tax efficient way to take money out of your own limited company is by paying yourself a low salary and taking dividends up to the higher rate threshold of £46,350. Your company gets corporation tax relief on your salary and the dividends have a minimal amount of tax, saving both you and your company plenty of money.
You can also consider paying into a private pension scheme. Your company is able to contribute £40,000 per tax year into your pension as an allowable expense for corporation tax relief.
An important point to note is that once your income surpasses £100,000 during a tax year, you will start losing your personal allowance. By about £120,000 it'll be gone and your tax bill will increase significantly. We recommend avoiding this situation and only taking up to the £100,000 limit.
Remember to find out the UK dividend tax rates each year so you know what your tax liability will be on your personal tax return.
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