Dividend Policy Decisions

We saved our client £12,102 in tax without reducing her £120K income. A client running a successful consultancy came to us feeling frustrated. 👉 She was taking £120K a year (£12,570 salary, the rest in dividends). 👉 Her tax bill was way too high and she couldn’t figure out why. 👉 She was losing thousands to HMRC unnecessarily. When we broke down the numbers, the problem became clear. Here's what her original income structure looked like: 💰 Total Withdrawals: £120,000 💰 Salary: £12,570 💰 Dividends: £107,430 At first glance, it looked simple. But here’s where things went wrong 👇 ❌ Loss of Personal Allowance Earning over £100K meant she was losing £1 of personal allowance for every £2 earned over £100K. She lost her full £12,570 personal allowance which cost her an extra £2,514 in tax. ❌ High Dividend Tax Since she took all dividends herself, her taxable dividend income was £106,930 (after the £500 dividend allowance). She was losing thousands just because her income wasn’t structured efficiently. Here’s what we did to fix it: ✅ Transferred Shares to Her Husband Her husband was already helping in the business, so we made him a shareholder and director. This allowed us to use both their tax-free allowances and lower tax bands. ✅ Split the Dividends Instead of her taking all £107,430 in dividends alone, we split them equally (£53,715 each). This significantly reduced the amount of dividends being taxed at 33.75%. ✅ Restored Her Personal Allowance By reducing her individual taxable income below £100K, she reclaimed her £12,570 personal allowance, saving her £2,514 in tax. Here’s how much she actually saved: 📌 Restored Personal Allowance Savings: £12,570 × 20% basic rate = £2,514 saved 📌 Dividend Tax Savings (Before vs. After): - Old Setup (Her Taking All Dividends) Taxable dividends: £106,930 Tax calculation: £37,700 × 8.75% = £3,298.75 £69,230 × 33.75% = £23,364.13 Total Dividend Tax: £26,662.88 - New Setup (Splitting Dividends Between Both Spouses) Each spouse’s dividends: £53,715 Taxable amount per person: £53,215 (after £500 allowance) Tax per person: £37,700 × 8.75% = £3,298.75 £15,515 × 33.75% = £5,238.56 Total tax per person: £8,537.31 Total tax for both spouses: £8,537.31 × 2 = £17,074.62 📌 Total Dividend Tax Savings: Old Tax: £26,662.88 New Tax: £17,074.62 Saved: £9,588.26 📌 Total Annual Tax Savings: £2,514 (personal allowance) + £9,588.26 (dividends) = £12,102.26 The Result: 💰 Same £120K income, but £12,102 less in tax. 💰 More disposable income as a couple. 💰 A tax-efficient business setup that works for them. Don’t assume your current setup is the best one. A little planning can save you thousands every single year. Think you’re overpaying tax? Drop me a DM.

As a business owner or director in Kenya, how you extract money from your company matters. Most directors focus on how much profit the business makes. Very few stop to examine how they extract that profit. And yet, that decision alone can influence your tax exposure, loan eligibility, retirement security and even how investors perceive your company. Take a simple example: KES 100,000 per month. If you earn it as a salary, you will pay PAYE and statutory deductions like NSSF and SHIF. Your net take-home reduces in the short term. However, that salary becomes a deductible expense to the company, lowering corporate taxable profit. You also build retirement contributions, strengthen your personal income profile for credit applications, and create a clean separation between business earnings and personal income. If instead, you take the KES 100,000 as profit, the company first pays 30% corporate tax. The remaining balance is then subject to 5% dividend withholding tax. While dividends may look lighter at the personal level, they come after corporate tax has already been paid. There are no retirement contributions, no statutory health benefits, and no consistent payroll trail. What appears simpler can quietly be less strategic. At lower-to-mid remuneration levels , payroll beats dividends hands down. You keep more money today, build social security and reduce overall tax leakage. For very high amounts, a salary + dividend mix is often optimal to balance PAYE brackets and corporate tax. Smart directors do not just extract money. They design income flows intentionally. Tax is not merely about compliance. It is about structure, sustainability and long-term positioning. #BusinessOwners #TaxPlanning #FinanceTips

Incorporated business owners and professionals in Canada need to decide how to pay themselves from their corporation. With the increasing capital gains inclusion rate, finding the optimal compensation strategy is more important now than ever. Here's how to do it: Optimal compensation is not a binary decision between salary and dividends, it's a different combination of salary and dividends each year. Understanding why starts with understanding the notional tax accounts: RDTOH, GRIP, and CDA. RDTOH means refundable dividend tax on hand. This is tax that the corporation has paid that is refunded at a rate of 38.33% when a dividend is paid to a shareholder. There are two types: eRDTOH: When a corporation receives an eligible dividend there is a 38.33% tax that is refunded when the corporation pays an eligible dividend to a shareholder. Eligible dividends also create general rate income pool (GRIP) - the amount that a corporation can pay out as eligible dividends. nRDTOH: When a corporation earns passive income from interest, foreign dividends, and realized capital gains, a 50.17% tax rate is applied in Ontario. 30.67% is refundable when a non-eligible dividend is paid to a shareholder. CDA: Finally, when a capital gain is realized in a corporation, the non-taxable portion of the gain - 50% as of today, and 33.33% after June 25 - creates capital dividend account, or CDA, which can be paid tax-free to a shareholder. Why does all this matter to how you pay yourself? Inflation erodes the real value of tax-free capital dividends, and there is an opportunity cost to having refundable taxes owed to you. You also don't want to constantly pay out dividends (paying personal tax) beyond what is needed to live just to keep your notional accounts depleted. We haven't even mentioned salary yet! Salary tends to be slightly favored by tax integration - you usually pay a bit less tax overall when you pay yourself salary rather than dividends. Salary also comes with benefits like access to CPP and RRSP room, but it does nothing to clear notional accounts. Optimal compensation balances all of these trade-offs from year-to-year while keeping an eye on the long-term view. An approximately optimal compensation plan generally looks something like this: 1. Start with how much you need to spend. 2. Deduct any mandatory income - like an outside salary. For the remaining income needs, prioritize: 1. Tax-free capital dividends. 2. Eligible dividends that release eRDTOH. 3. Non-eligible dividends that release nRDTOH. 4. Salary is typically next in line if there is no CDA or RDTOH available. Over time, the optimal mix of compensation will tend to start with salary, and then shift to dividends over time as the corporate investment portfolio increases in size, generating more CDA and RDTOH. If you want more on this, check out episode 13 of the Money Scope podcast. https://lnkd.in/eNwA92_h

💡 In Europe, not all dividends are created equal... Some get taxed. Heavily. Here's a breakdown: 🔺 Top of the chart: 🇮🇪 Ireland – 51% 🇩🇰 Denmark – 42% 🇬🇧 UK – 39.35% 🔻 Zero (0%) dividend tax: 🇪🇪 Estonia & 🇱🇻 Latvia – thanks to cash-flow-based corporate tax systems 🇲🇹 Malta – allows offsets against corporate tax (35%), bringing top dividend tax to 0% 🔻 Lowest dividend taxes: 🇧🇬 Bulgaria, 🇬🇪 Georgia, 🇬🇷 Greece – 5% 🇲🇩 Moldova – 6% 1️⃣ Average top dividend tax across 35 European countries: 20.53% 🇺🇸 For comparison, the U.S. rate (federal + state) = 28.73% 2️⃣ Recent & upcoming changes 📈 Romania: 8% → 10% (2025) 📉 Slovakia: 7% → 10% (2024) → back to 7% (2025) 📈 Spain: 28% → 30% (2025) 📈 Netherlands: 26.9% (2024) → 36% (2025) 3️⃣ Double Taxation ? Well, in most countries profits are taxed twice - once at the corporate level, then again when paid out as dividends. 💡 Of course, you can always limit or reduce the tax impact through proper wealth planning, cross-border structuring, or restructuring. Jurisdiction matters - but strategy matters more. 🔴⚪ And Monaco ? For its residents, the Principality does not levy tax on dividends (0%). Note: All types of reliefs and gross-up provisions at the shareholder level are taken into account. #Tax #WealthPlanning #TaxStrategy #Investing #Europe #FinancialPlanning #Finance #Monaco #Relocation #RelocationToMonaco #Dividends

The 2% dividend tax was a cover feature of The Star's report on the Malaysia Budget 2025, announced yesterday, which included my comments. My main concern is: '𝑇ℎ𝑖𝑠 𝑐𝑜𝑢𝑙𝑑 𝑟𝑒𝑠𝑢𝑙𝑡 𝑖𝑛 𝑎 𝑓𝑜𝑟𝑚 𝑜𝑓 𝑑𝑜𝑢𝑏𝑙𝑒 𝑡𝑎𝑥𝑎𝑡𝑖𝑜𝑛, 𝑎𝑠 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 𝑎𝑟𝑒 𝑡𝑦𝑝𝑖𝑐𝑎𝑙𝑙𝑦 𝑝𝑎𝑖𝑑 𝑜𝑢𝑡 𝑓𝑟𝑜𝑚 𝑎 𝑐𝑜𝑚𝑝𝑎𝑛𝑦'𝑠 𝑎𝑓𝑡𝑒𝑟-𝑡𝑎𝑥 𝑝𝑟𝑜𝑓𝑖𝑡𝑠. 𝐶𝑜𝑛𝑠𝑒𝑞𝑢𝑒𝑛𝑡𝑙𝑦, 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑚𝑎𝑦 𝑓𝑖𝑛𝑑 𝑡ℎ𝑒𝑚𝑠𝑒𝑙𝑣𝑒𝑠 𝑡𝑎𝑥𝑒𝑑 𝑎𝑔𝑎𝑖𝑛 𝑜𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡ℎ𝑎𝑡 ℎ𝑎𝑠 𝑎𝑙𝑟𝑒𝑎𝑑𝑦 𝑏𝑒𝑒𝑛 𝑠𝑢𝑏𝑗𝑒𝑐𝑡 𝑡𝑜 𝑐𝑜𝑟𝑝𝑜𝑟𝑎𝑡𝑒 𝑡𝑎𝑥, 𝑟𝑎𝑖𝑠𝑖𝑛𝑔 𝑐𝑜𝑛𝑐𝑒𝑟𝑛𝑠 𝑎𝑏𝑜𝑢𝑡 𝑡ℎ𝑒 𝑖𝑚𝑝𝑎𝑐𝑡 𝑜𝑛 𝑜𝑣𝑒𝑟𝑎𝑙𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑟𝑒𝑡𝑢𝑟𝑛𝑠 𝑎𝑛𝑑 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑝𝑙𝑎𝑛𝑛𝑖𝑛𝑔 𝑠𝑡𝑟𝑎𝑡𝑒𝑔𝑖𝑒𝑠.' The Malaysia Budget 2025 introduces a new 2% tax on dividend income exceeding RM100,000 for individual shareholders. Though further details are awaited, this tax seems to apply to dividends from both private limited (Sdn Bhd) and public companies. For Sdn Bhd shareholders, this could be viewed as an attempt to target high-income earners who have traditionally structured their earnings through companies to benefit from lower corporate tax rates. By imposing this dividend tax, the government may be aiming to equalize tax contributions, ensuring that individuals with substantial dividend income pay their fair share. However, this could result in a form of double taxation, as dividends are typically paid out from a company's after-tax profits. Consequently, shareholders may find themselves taxed again on income that has already been subject to corporate tax, raising concerns about the impact on overall investment returns and financial planning strategies. While certain exemptions- such as dividends from EPF, ASNB, and foreign sources - have been mentioned, the full impact on Sdn Bhd shareholders remains to be clarified.

REITs are often positioned as a convenient way to invest in real estate. They trade like stocks and commonly offer dividend yields around 4% to 4.5%. On the surface, those returns can look appealing. The key question, however, is how much of that income investors actually keep. REIT distributions are taxed as ordinary income. Depending on the tax bracket, that rate can be as high as 50%. A 4% dividend can quickly drop to 2% to 3% after taxes are applied. This is where the difference becomes meaningful. In private real estate, distributions are often supported by depreciation, which can offset taxable income. As a result, a 5% to 7% distribution may be largely tax-deferred, allowing investors to retain more of their cash flow. The gap between pre-tax and post-tax returns becomes hard to ignore. While REITs may appear competitive at a headline level, the net outcome tells a different story. Over time, this advantage compounds. Keeping more capital invested instead of losing a portion to taxes each year allows returns to grow more efficiently across multiple cycles.

Do you have company tax to pay? You might be in for a further tax surprise. A LOT of accountants love to leave your company profits in your company and have it taxed at 28% and say they've saved you tax. Yay! Great, cheaper tax… NOT QUITE... All that really happens is the profits are retained in the company and taxed at 28%. We see this time and time again and hear from confused business owners. You think you’ve paid all of the tax you need to pay because that is what your accountant said. Often these profits retained in the company will eventually need to be paid out via a dividend to the shareholder (you) and included in your tax return at either 30%, 33% or 39%. That means you haven’t paid enough tax. You’ve often short paid by: 2% 5%  Or even 11% if you’re in the top tax bracket. This crafty wee trick isn’t well explained to business owners so make sure you are aware of your TRUE tax obligations if your accountant keeps profits in your company. Sometimes the accountant does it because they genuinely think they are saving you tax. BUT they may just be kicking the tax can down the road to when you need to do a dividend. And guess what else? When they do that dividend, you not only have to pay the short fall of tax BUT you probably have to pay something else. Accounting fees. Dividends = usually more accounting fees. An easy way to check this is whether you have 'retained earnings' sitting on your balance sheet which you can see in your latest set of annual accounts. If you’ve got retained earnings, there is a high chance you’ve still got more tax to pay in the coming years. Ensure you understand this because as we know, business owners hate tax surprises.

Your Way… New Dividend Tax Rates following this budget….What’s the Answer? The Autumn Budget didn’t just “tweak” dividend tax. It quietly rewired how business owners are taxed — and for many, the numbers no longer stack up the way they used to. Here’s what actually happens when you take £100,000 of profit out of your business under the new rules. 1️⃣ Limited Company — Full Salary To pay a salary, you must also fund 15% employer NIC. That forces the salary down to £87,609, with £12,391 in employer NIC. Personal taxes: • Income tax: £22,476 • Employee NIC (8%/2%): £3,763 Net to owner: £61,370 Not great. Employer NIC at 15% kills it. 2️⃣ Limited Company — £12,570 Salary + Dividends This has been the standard owner-director model for years. • Salary: £12,570 • Employer NIC: £1,135.50 • Corporation tax: £21,573.63 • Dividends available: £64,720.87 Dividend tax at new rates (10.75% / 35.75%): £13,717 Net to owner: £63,574 Better than full salary — but nowhere near as efficient as it used to be. Rising dividend tax is doing the heavy lifting. 3️⃣ LLP (Self-Employment Tax) No corporation tax. No employer NIC. No dividend tax. Just straightforward income tax + Class 4 NIC. • Income tax: £27,432 • NIC: £4,880 Net to owner: £67,688 The LLP wins by a clear margin. So… what’s the answer? For many business owners, the old “small salary + dividends” model is no longer the most tax-efficient route. With higher dividend tax rates and tighter allowances, the LLP structure often puts £4,000–£6,000 more in your pocket for every £100k of profit. It won’t suit everyone — but the idea that a limited company is automatically best is now outdated. The numbers say otherwise. If you want to know how these new rates affect your own structure, message me

Double taxation is when the same money seems to be taxed twice. A common example is TAX ON DIVIDENDS. 🔸 A company pays tax on its profit – CORPORATION TAX. 🔸 The company can give part of the already taxed profit to its shareholders – DIVIDENDS. 🔸 The shareholder may also have to pay personal income tax on that dividend. So, it feels like the same money is being taxed two times, once by the company, and again by the person who receives the dividend. Let’s use a basic example of DEVA LTD ▪️ Profit before tax: $20,000 ▪️ Corporate tax rate: 20% ▪️ Dividend tax rate: 9% ▪️ Number of shareholders: 1 (Dennis Vandross) Corporation tax by DEVA LTD = 20% x $20,000 = $4,000 Profit after tax = $20,000 - $4,000 = $16,000 The company pays this $16,000 as a dividend to Dennis. Dennis then pays 9% dividends tax on the $16,000 = $1,440 Total tax paid: $4,000 + $1,440 = $5,440 The $20,000 profit is now deemed to be taxed twice But Is It Really Double Taxation? 🔶 THE PRINCIPLE OF CORPORATE PERSONALITY: This principle states that a company: 🔸 is a legal person, separate from its shareholders 🔸 earns its money, owns its property, and pays taxes on its income. 🔸 has its own rights and obligations So, when DEVA LTD earns profit, it pays corporate tax on that income. When it pays dividends to Dennis, that becomes Dennis’s personal income and like any personal income, it gets taxed. If Dennis is also a director and receives salary, he would still pay income tax on its salary. Two different “people” are paying taxes on their separate incomes: 🔸 DEVA LTD pays tax on its business profit. 🔸 Dennis pays tax on its personal income (dividends). Some jurisdictions therefore reduce tax burdens on dividends: 🔸 TAX CREDITS – Shareholders get credit for tax already paid by the company   🔸 LOWER DIVIDEND TAX RATES – Many countries tax dividends at a lower rate than other personal incomes   🔸 TAX-FREE THRESHOLDS – Small dividends to a certain threshold may be tax-free. People may call it DOUBLE TAXATION but technically, it’s not the same person being taxed twice. Instead: 🔸 The company pays tax on the profit it makes. 🔸 The shareholder pays tax on the dividend they receive from that profit. 🔸 If profit after tax isn’t paid as dividends, there won’t be any second tax to pay. 🔸 They are two different taxes on two separate events, even though the money is from the same source.

Declared doesn’t mean taxable. In Jays v HMRC (2022), two shareholders declared over £400k in dividends across 3 years, but didn't receive all of it. Due to banking restrictions with Lloyds, a significant portion was withheld and parked in blocked accounts they couldn’t access. HMRC claimed tax was due the moment those dividends were declared. But the First-tier Tribunal disagreed. The key ruling? Final dividends subject to tight restrictions don’t create a present right to payment. If funds are inaccessible and deferred by formal resolution, they’re not taxable until actually paid. Outcome: Discovery assessments and penalties were overturned. For SME owners, this matters. Dividend timing and documentation have real tax impact. Deferred ≠ due ≠ taxable. Clarity in resolutions, shareholder agreements, and payment mechanics can be a defence and not just admin. Ever structured dividends around external investor optics or lender restrictions? Would love to hear how others handled similar HMRC scrutiny. #SMEtax #Dividends #FTTdecision #LinkedInLaw #TaxPlanning #SMEfinance