Share Split with new Dividend Tax

[SimonMac]

At the moment MyCo has 10 shares, split 7/3 in my favour, with the new tax on dividends I want to balance out the best split so that the other party does not go over £5k and I can take the maximum upto the upper limit, which will either be £32k (if the £5k allowance is included) or £37k if its not included and treated separately (see here for discussions).

On that basis what would be the best split of shares to ensure I get the most out of the company, and my spouse does not go above their £5k.

I am thinking

Me 87 shares @ £345 per share = £30,015
Spouse 13 shares @ £345 per share = £4,485

or

Me 875 shares @ £40 per share = £35,000
Spouse 125 shares @ £40 per share = £5,000

Anyone else got any thoughts on what they will do?

[TheFaQQer]

Thresholds can go down as well as up, so trying to hit today's threshold isn't really going to help you other than in the first year of operation.

Pick one that seems sensible and stick with that, even if it means paying a few pounds more in tax.

[mudskipper]

Currently you don't fill out a tax return unless share income exceeds 10K (or for other reasons, obv.). Guess that'll be changed to 5K. So if you go over, you could end up with your partner having to do a tax return. Maybe?

[WordIsBond]

They are already getting some pushback on hitting pensioners on the dividend tax. They aren't going to kill it, but I wouldn't be surprised if they bump up the dividend allowance to 7.5 or 10K in the name of protecting pensioners. Seems like you probably want to wait to see if the thresholds change.

If it stays how it is, you might want to change to 8/2 or 85/15. As noted above, thresholds will change over time and you can't fine-tune it too precisely.

You don't want your spouse to be dragged into SA if that isn't already necessary, and paying a little extra tax to avoid that is probably worth it. You also don't want your spouse to be paying higher rate tax on dividends. If either of those is a problem, then you'd shade your spouse's shareholding lower to protect against that.

If your spouse already files Self Assessment and isn't a higher rate tax payer, then it really doesn't cost anything to breach the £5K threshold by a little bit, so you might bump your spouse's shareholding higher.

[TheFaQQer]

They are already getting some pushback on hitting pensioners on the dividend tax. They aren't going to kill it, but I wouldn't be surprised if they bump up the dividend allowance to 7.5 or 10K in the name of protecting pensioners. Seems like you probably want to wait to see if the thresholds change.

I'm surprised that it hits many pensioners, since dividends paid to pensions or within an ISA aren't included.

So you either need a hefty portfolio or a significant holding in one company to get your £5k.

[SimonMac]

Currently you don't fill out a tax return unless share income exceeds 10K (or for other reasons, obv.). Guess that'll be changed to 5K. So if you go over, you could end up with your partner having to do a tax return. Maybe?

They are a director so they do an SA anyway

[TheCyclingProgrammer]

The problem here is, are you going to keep changing your shareholding every time thresholds change? Nothing stopping you but it could look suspicious and why draw any unwanted attention from HMRC if you can avoid it?

[TheCyclingProgrammer]

They are a director so they do an SA anyway

The new changes are still likely to draw people into self-assessment where they weren't before. I know its been discussed on here many times before, but being a director alone does not require you to submit a self-assessment (despite what HMRC guidance on the issue might say) but having undeclared taxable income does.

Previously a shareholder receiving dividends at the basic rate would have no extra tax to pay and would not have had to file a self assessment on that basis (unless they had other income that needed declaring) but now as soon as you hit the £5k limit you will do. Assuming HMRC continue to maintain the existing thresholds for collecting tax via PAYE, then you may still avoid having to do a SA if the amount over the £5k is low enough and you have a PAYE job that the tax can be collected through but for a lot of people this will now mean they have to submit a SA.

[drumtochty]

I'm surprised that it hits many pensioners, since dividends paid to pensions or within an ISA aren't included.

So you either need a hefty portfolio or a significant holding in one company to get your £5k.

Not so a pensioner is receiving an income from their pension in most cases. If they do not have the shares already in a pension they are unprotected.

Example, Mother in law has a £6k state pension and a £100k lump sum in shares etc. that pays approx £6k a year in dividends and as her state pension and divis amount in total to £12k and well below the basic rate limit she pays no tax on her total income. No need at all to have the shares in a stocks and shares ISA. A stocks and shares ISA also has a yearly fee to run it.

She will from April 2016 pay no tax on her state pension as now but will pay 7.5% of £6k less £5k so £75 that she did not pay this year.


In her case a very small amount but on a £12k income it's £75 she would rather have in her purse.

I think most people would think, that nest egg inherited from her father 60 years ago is not a hefty portfolio!

You may well think it is.

[WordIsBond]

Pensioners, if they have shares investments, are likely (hopefully) invested in income-producing shares rather than growth investments. High-dividend shares are typically more stable in price than other shares. Growing companies reinvest their profits to increase growth, but obviously that comes with greater risk.

A pensioner should generally be invested in established companies with stable revenue streams. Those companies will be paying dividends regularly out of those revenue streams. This will mean the pensioner's investment is income-producing, which is appealing to most pensioners, and likely to retain its value, also appealing to pensioners. On the other hand, those investments aren't likely to have significant increases in value, but big increases in value aren't that important by the time a pensioner retires.

Since pensioners will typically be in high-dividend shares, they don't need a particularly large portfolio to get hit by the new dividend tax regime. I will be very surprised if the government doesn't address this before next year. They may increase the new dividend allowance to £10K to mitigate it. Or they may just give pensioners a £10K dividend allowance while keeping the rest of us at £5K. But I will be surprised if they do nothing.