If you have a buy-to-let property business in a limited company, the Office for Tax Simplification (OTS) is proposing some big changes that could increase the amount of tax paid on dividends.

On 25th May, the independent office of HM Treasury, recommended the changes as currently the tax paid on dividend income is less than other income sources.

The OTS gives the government advice on how to simplify the tax system and as currently they described dividend tax calculations as “complex” so they are proposing dividends should be taxed at the same rate as income.

Its report stated: “A more radical option would be to end the differential tax rates for dividend income. If all taxable income was taxed at the same rates, it would not matter how the personal allowance was used.

“Making this change would have the effect of increasing the amount of tax due from those who receive amounts of dividend income above the allowance. It would also impact on the taxation of profit extracted as a salary or as a dividend, from family owned companies.”

Currently, basic rate tax payers pay 7.5% tax on any dividends received, if they exceed the £2,000 allowance. Higher rate tax payers it is 32.5% tax and additional rate tax payers pay 38.1%. If the change is implemented, these amounts would increase by 20%, 7.5% and 6.9% respectively. For the basic rate tax payers, that is an increase in tax payments on limited company properties dividends by 125%.