Changes in the rates of dividend taxation put forward in the Budget means that small business owners and entrepreneurs will have to pay £6.8bn in tax over the coming five years.
Tax experts claim that this change may lead to small business owners deciding to sell their businesses before the changes come into effect. At present, small business top rate tax payers can choose whether to grow their business and self-pay an income dividend at the tax rate of 30.6pc, or sell their business and pay capital gains tax of 28pc. While capital gains tax will remain the same, the top rate of dividend income tax will increase to 38pc.
Accountancy firm KPMG’s Dermot Callinan said, “This reform has the potential to incentivise private company owners to put themselves up for sale. We were not expecting this and the new rates has our clients thinking: 'Is it better to now sell the business ahead of the changes’.”
However, the Treasury are claiming that ordinary investors who have smaller portfolios and enjoy only a modest dividend income will not see any change in their tax liability, with some even paying less tax.
The change will therefore, affect only the small businesses who pay top rates, and may discourage high-income businesses from investing.
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