Reply to: Divvie tax calculation update

[jamesbrown]

But I'm not sure anyone was "led to believe" that they'd be able to extend the basic rate band by £5K.

They weren't really, but I think a lot of people (myself included) assumed it would operate in a similar way to the annual CGT allowance, but also cautioned that this could be wrong.

[WordIsBond]

So it's even worse than people were LEAD TO BELIEVE when Osborne made the speech?

Not really. There weren't enough specifics in the speech to lead anyone to believe anything (except that he'd obviously targeted us). No one knew, after the speech, how it related to the personal allowance -- there was some concern that it might overlap the PA rather than come on top of it. That would have been far worse than what we are now being told.

This is not quite the best that could have been hoped after the speech, but the difference is not really that much, and it is far better than the worst that was feared.

Edit: Actually, that's probably not fair. Because my spouse is a shareholder, we can easily take out all we need without hitting higher rate band. The fact that it isn't an allowance is a real hit for those who need to take out dividends into the higher rate band.

But I'm not sure anyone was "led to believe" that they'd be able to extend the basic rate band by £5K.

[jamesbrown]

So it's even worse than people were LEAD TO BELIEVE when Osborne made the speech?

Big surprise

Well, you could say it's somewhat worse than the best case scenario we'd hoped for Seriously, though, all of this needs to be placed in context. It may remove some opportunities for tax planning, but that is hardly the reason that most of us operate through a company (or even one of the important reasons). When you factor in the other changes happening between now and 2020, including CT @ 18%, a 12.5k allowance and a 50k higher rate threshold, the overall differences between now and 2020 will be absolutely negligible for most of us. This hardly changes the landscape. What could change the landscape, not only in terms of tax and administration but how we choose clients/contracts and run our businesses, is the IR35 review and the expenses changes.

[AtW]

So it's even worse than people were LEAD TO BELIEVE when Osborne made the speech?

Big surprise

[mudskipper]

HMRC version, Dividend Allowance Factsheet just published.

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

OK, so that says the same. It counts towards your tax bands.

[drumtochty]

HMRC version, Dividend Allowance Factsheet just published.

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

[The Spartan]

The example they provided was utter tulip

[jamesbrown]

Was there a definitive statement based on publish facts or is it just more assumptions and the message is carry on waiting until we do know?

It's "guidance" from the Treasury. Take that for what it's worth. There are no definitive statements other than the legislation.

[jamesbrown]

ok now i've confused myself

let's say higher rate tax threashold is 43k for the sake of detail

what if you were paid £43k salary and £5k dividends - what would the dividends be taxed at (with your current understanding)?

and what about 43k sal and 6k dividends

In the new scenario, the 5k is zero-rated, regardless of your marginal rate. Thus, you would pay no additional tax on the 5k in your first example. In the second example, you'd pay higher rate tax (32.5%) on 1k, i.e. above the 5k, zero-rated, amount. However, this example is not particularly illuminating, because 43k uses up your lower rate band anyway. A more illuminating example would be a 38k salary and a 10k dividend. In the new scenario, 5k would be taxed at 32.5%, instead of 7.5% (i.e. had this been an allowance).

[northernladuk]

Was there a definitive statement based on publish facts or is it just more assumptions and the message is carry on waiting until we do know?

[The Spartan]

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.

No problem, that's the way I calculated based on the article itself as the 5K can only be used against dividend income.

[pr1]

ok now i've confused myself

let's say higher rate tax threashold is 43k for the sake of detail

what if you were paid £43k salary and £5k dividends - what would the dividends be taxed at (with your current understanding)?

and what about 43k sal and 6k dividends

[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.

[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]

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.