Divvie tax calculation update

[mudskipper]

See here:

Dividend tax update: New advice on nil-rate allowance | AccountingWEB

[SimonMac]

So it was pretty much what we exected

[jamesbrown]

See here:

Dividend tax update: New advice on nil-rate allowance | AccountingWEB

OK, so that's worse than predicted. If it's not an allowance, it counts towards the basic rate band, and the total amount that can be taken is reduced accordingly before the higher rate band is reached.

[jamesbrown]

So it was pretty much what we exected

Nope, the summer budget described the 5k as "tax free", so it was assumed to be an allowance, i.e. removed from the total dividend before the ordinary banding is applied. If it's zero-rated, it will count towards the basic rate band. Bottom line, you'll hit the higher rate band sooner than anticipated.

[pr1]

Nope, the summer budget described the 5k as "tax free", so it was assumed to be an allowance, i.e. removed from the total dividend before the ordinary banding is applied. If it's zero-rated, it will count towards the basic rate band. Bottom line, you'll hit the higher rate band sooner than anticipated.

that's not what I assumed... perhaps that's the difference between pessimists and optimists

[jamesbrown]

that's not what I assumed... perhaps that's the difference between pessimists and optimists

Then you were correct The majority of calculations/calculators I've seen were premised on the 5k being an allowance.

However, it's worth bearing in mind that this is just another set of "guidance". Until we see the actual legislation...

[mudskipper]

OK, so that's worse than predicted. If it's not an allowance, it counts towards the basic rate band, and the total amount that can be taken is reduced accordingly before the higher rate band is reached.

That's how I read it; wanted someone else to confirm! Some of the comments still seem to think it's tax free though?

[jamesbrown]

That's how I read it; wanted someone else to confirm! Some of the comments still seem to think it's tax free though?

It could still be argued to be "tax free", but in a conditional sense. It depends what you mean by tax free. You won't pay tax on the first 5k of dividends, regardless of your marginal rate. However, it will impact the rates at which you pay tax on other income (in particular, other dividend income, because that is the last slice); had this been an allowance, that would not be true.

[The Spartan]

It could still be argued to be "tax free", but in a conditional sense. It depends what you mean by tax free. You won't pay tax on the first 5k of dividends, regardless of your marginal rate. However, it will impact the rates at which you pay tax on other income (in particular, other dividend income, because that is the last slice); had this been an allowance, that would not be true.

So 11k salary, 5k tax free dividends plus 27k dividends @ 7.5% dividend tax to stay under the upper limit?

[jamesbrown]

So 11k salary, 5k tax free dividends plus 27k dividends @ 7.5% dividend tax to stay under the upper limit?

I'm tempted to say yes, but it obviously depends on the actual legislation. Also, based on the same article, the allowance for tax-free interest (first 1k) seems to be in doubt.