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Inflation vs. dividend tax

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    Inflation vs. dividend tax

    With inflation on the rise, and the compounded devaluing effect that has on cash, does anyone plan to change their dividend drawdowns?
    And if not, at what rate of inflation would people consider high enough such that they should voluntarily pay more dividend tax so they can get the money out and either spent, or invested somewhere more inflation proof?

    I ask as I have a 6 figure sum in the LTD, that if I stick to taking out so I stay in the base rate of personal taxation, will still be in the company in 3 years (or longer if I carry on earning). Inflation will be eating away at that all the time, and I don't see any major changes in savings rate interest coming.

    I am considering pushing up to the top of the higher rate in 21/22 to minimise that effect, but wonder what others are thinking.
    See You Next Tuesday

    #2
    I'd work out the reduction in the time value of money in the next 3 years (using some assumed inflation rates over that period), apply the tax rates that would be incurred to remove the funds from the company (20%), incorporate some small interest rate payment (I do expect these to increase a few fractional points over the next couple of years) and then work that out as an overall percentage.

    I'd then see whether i thought I'd be able to beat that rate with an investment on those withdrawn funds. I'd create a spreadsheet so i could play with the variables (interest rates, amount withdrawn, expected investment return).
    Last edited by Paralytic; 15 November 2021, 09:22.

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