Interesting Find in Budget Docs from HMRC re Divi Tax Rate

[matzie]

So... by now we all know that from April 2018 the Dividend Tax Allownance will reduce from £5,000 to £2,000.

The impact of that on us should be £3k * 7.5% = £225.

However on this page: https://www.gov.uk/government/public...ance-reduction

HMRC say,

mpact on individuals, households and families

Individuals and households who receive dividend income in excess of £2,000 will be affected. Around two thirds of all those with dividend income, will be unaffected by this measure. It is estimated that this will affect around 2.27 million individuals in 2018 to 2019 with an average loss of around £315.

Hmm... £3k * 10.5% = £315 ....

Or am I missing something?!

[SueEllen]

So... by now we all know that from April 2018 the Dividend Tax Allownance will reduce from £5,000 to £2,000.

The impact of that on us should be £3k * 7.5% = £225.

However on this page: https://www.gov.uk/government/public...ance-reduction

HMRC say,

mpact on individuals, households and families

Individuals and households who receive dividend income in excess of £2,000 will be affected. Around two thirds of all those with dividend income, will be unaffected by this measure. It is estimated that this will affect around 2.27 million individuals in 2018 to 2019 with an average loss of around £315.

Hmm... £3k * 10.5% = £315 ....

Or am I missing something?!

[LondonManc]

Potentially missing the weighting of those who have two dividend takers.

[Darren at Fox-Bartfield]

Dividends

Some will also be paying additional divi tax at the higher rate.

[eek]

Potentially missing the weighting of those who have two dividend takers.

or the fact that some people will be being taxed in the 40% band at 32.5%....

[TheCyclingProgrammer]

For most of us, whose dividend income starts way below the higher rate threshold, the effect will be an extra £225 in tax.

For those who are already higher rate payers before they take any dividend income, that extra £3k will be costing them an extra £975.

[b r]

https://www.gov.uk/government/public...ance-reduction

Impact on individuals, households and families
Individuals and households who receive dividend income in excess of £2,000 will be affected. Around two thirds of all those with dividend income, will be unaffected by this measure. It is estimated that this will affect around 2.27 million individuals in 2018 to 2019 with an average loss of around £315.

Wonder if this 2.27 million already excludes those who'll be moving off dividends as they're inside IR35 and PAYE, or are we double counting?

[LondonManc]

https://www.gov.uk/government/public...ance-reduction



Wonder if this 2.27 million already excludes those who'll be moving off dividends as they're inside IR35 and PAYE, or are we double counting?

Good point, well made. Oops.

[MPwannadecentincome]

For most of us, whose dividend income starts way below the higher rate threshold, the effect will be an extra £225 in tax.

For those who are already higher rate payers before they take any dividend income, that extra £3k will be costing them an extra £975.

umm this is a new one on me. So I can take salary upto personal allowance then take 60K in dividends and pay no higher dividend rate tax (if I have no other income?).

[TheCyclingProgrammer]

umm this is a new one on me. So I can take salary upto personal allowance then take 60K in dividends and pay no higher dividend rate tax (if I have no other income?).

No, not sure how you got that from what I posted.

Take a typical contractor who takes the normal £8k salary/£35k dividend split up to the higher rate threshold. The £8k salary and first £3k of dividends will be covered by the personal allowance, the first £5k of taxable dividends will be covered by the dividend allowance and the rest will be taxed at 7.5% (£2025). All other things being equal, the £3k reduction of the dividend allowance means you'll be paying 7.5% on an extra £3k (£225) though the increase in personal allowance will cancel some of that out.

If you're on a full time salary of say £43k and have some dividends from other investments, then currently you can still get £5k in dividends with no other tax due. When this is reduced, as a higher rate tax payer you'll be paying 32.5% on an extra £3k (£975).