oh dear: Minister hints at pensions tax raid on middle-class savers

[AtW]

Ah, but remember you claimed to have profits in excess of £1.5 million, so your corporation tax has come down from 28% to 20% and in a few years to 18%. So you are laughing aren't you!

Yes, the corp tax has come down as part of declared Conservative policy to reduce too heavy taxes on companies that create jobs. I believe they promised that up front, so everybody was clear on it and they did what they promised, albeit VERY slowly - 20% rate kicked in only in CURRENT tax year and immediately next year they take away all they gave plus some more.

The reduction of corp tax was necessary to do because big companies were beginning to relocate from Britain.

Also, under Labour max tax rate was 40% (for most of their reign), so 28% corp tax and 40% max band not much different from now.

This is what makes the whole thing really abusive - first they cut down that corp tax (which was right thing) and now they increased dividend tax so that the situation is actually worse than if they had kept corp tax at old levels.

We'll talk about reduction of corp tax to 18% when or if it happens - scheduled for April 2020 with General Election in May 2020. The 2% reduction is an insult anyway.

[AtW]

You are confusing the rate of income tax on dividends with the dividend tax credit. They are two different things.

I am not confusing anything - most of my income comes from dividends, so I've got pretty good idea on how it works.

I know for fact that I'll be paying a LOT more tax next year because of dividend tax credit theft - this should have only happened if corp tax was 0%. If they wanted to do it fair then they should have taken into account corp tax paid by the company and use it to offset individual shareholders tax liability because it's double taxation on same money.

[Waldorf]

I am not confusing anything - most of my income comes from dividends, so I've got pretty good idea on how it works..

Oh dear, sadly you have clearly demonstrated that you DO NOT understand the difference between tax on dividends and tax credits. I'll not waste anymore time but perhaps a bit of research may help.

[AtW]

Oh dear, sadly you have clearly demonstrated that you DO NOT understand the difference between tax on dividends and tax credits. I'll not waste anymore time but perhaps a bit of research may help.

I understand very clearly that my tax rate is going up big time due to removal of dividend tax credits.

30.56% to 38.1% is the increase, sources:

1) https://www.gov.uk/tax-on-dividends/...ends-are-taxed
2) Dividend tax (proposals 2016/17 on)

Do you dispute those figures? They are the only ones that matter.

The discussion of dividend tax credits is relevant here because the increase happens because Govt decided to completely remove those "tax credits", same thing as Brown did for pension funds when he got in power and now Osborne has done for everybody else.

Even if he removed dividend tax credits and REDUCED dividend tax rate to make change revenue neutral I'd still be against it - dividend tax credit makes perfect sense since Corp tax is way higher than 0, only with 0% corp tax it would be fair to remove dividend tax credits.

[Waldorf]

Dividends are (until 5th April 2016) effectively taxed at 0% for basic rate taxpayers, 25% for higher rate taxpayers and 30.56% for additional rate taxpayers.

The dividend tax credit only confused the system and was to confuse the public when Gordon Brown changed the system. Prior to this the tax credit was 25% of the net dividend.

Prior to Brown's meddling, a small taxpayer, pension funds etc could claim a repayment of this tax credit. This was the start of the erosion of pension funds.

The new tax credit was redundant and should never have been carried forward. Hardly anyone I have ever spoken to understood it.

The abolition of the dividend tax credit has coincided with the increase in the rate of tax on dividends, it's abolition is NOT the reason why your taxes are increasing. They are increasing because the Chancellor has decided to increase the tax and with it remove the link between the rates of tax on earned income and the combined taxation of companies (with corporation tax) and taxes on dividends.

Simples.

[jamesbrown]

Yep, taken alone, the abolition of the notional tax credit is good, because it implies a larger dividend in your pocket before reaching the higher or additional rate bands. The notional tax credit really only manifests itself as a tax banding issue because it requires a net dividend to be "grossed up". Anyway, it was far too complicated for the average punter. The bad thing is the new dividend tax itself and that's why AtW will be paying more on some of his annual £5,000.20 dividend.

[AtW]

They are increasing because the Chancellor has decided to increase the tax

Well thanks for clearing that up

Dividend tax credits were confusing to some but they had perfect sense because corp tax paid by the company needs to be taken into account when taxing same money - they are removed now completely which would undermine UKs competitiveness: for example Holland got tax agreement with UK which recognised half of the dividend tax credit as tax offsetable against taxes charged in Holland, so now cretin Osborne cost those companies extra money.

If he really needed to increase tax on dividends then he should have increased the rates BUT keep dividend tax credits - at least that would make some sense from international investment point of view.

[rapid]

What impact will this have on ltd/employer contributions? for example in to a SIPP..

[AtW]

What impact will this have on ltd/employer contributions? for example in to a SIPP..

Presumably same rules will apply.

The whole thing is really amusing - they are doing this stuff just after "auto-enrollment", which is in reality an additional pension tax on employers came into force.

[expat]

Let's wait until we what is announced before we all get hot under the collar.

However all of this goes back to what a delicate state our finances are in. Personally I would be happy with the total removal of tax relief on pension contributions and move to a Pension ISA. This would be sold as save now and total tax free income when you retire.

in what way would a "Pension ISA" be different from an ordinary ISA?