Reply to: Dividend tax - things I didnt realise

[WordIsBond]

It's on here, ergo lunatics

Ever hear of Epimenides' paradox?

Just wondering....

[LondonManc]

Cool. How do you tell whose figures are right, and which ones are the fevered imagination of lunatics?

It's on here, ergo lunatics

Do keep up.

[Maslins]

Shouldn't that be on £30k?

Think the calc was based on £8k salary, £11k personal allowance. So you get not only £5k worth of dividends tax free due to the dividend allowance, but also £3k worth of dividends tax free due to spare personal allowance. Hence only £27k of £35k divis taxable.

[WordIsBond]

To be fair I can ask for one but since the dividend tax was announced kind people on here have produced lots of figures.

Cool. How do you tell whose figures are right, and which ones are the fevered imagination of lunatics?

[SueEllen]

Oh.

To be fair I can ask for one but since the dividend tax was announced kind people on here have produced lots of figures.

[northernladuk]

Nope.

Oh.

[SueEllen]

Do people not get a tax planner from their accounts showing all this?

Nope.

[northernladuk]

Do people not get a tax planner from their accounts showing all this?

[DallasDad]

Well thanks PC, no I hadn't realised I could effectively use my unused personal allowance in this way and I assume same could apply to swmbo as well. I am still living off last years redundancy money so had not even discussed dividends with my accountant-ette.

I have split myco shares 60/40 with my PA (swmbo) but I am not paying her a salary yet for the limited admin she is doing. I better get that corrected so we can both benefit in the most efficient way from this.

[TheCyclingProgrammer]

now you take £35k net dividends before you hit the 32.5% higher rate tax - BUT now you pay 7.5% on £27k of the dividends.

Shouldn't that be on £30k?

[TheCyclingProgrammer]

Well, technically it doesn't impact company profits at all if you pay more dividends this year than last. But it does impact how much profit is retained in the company, which I know is what you meant. Just that somebody reading might think it affects Corporation Tax due on profits, and it doesn't, we're talking about after-tax profits here, so I decided to be pedantic.

That is what I meant, and fair enough.

[LondonManc]

Barry is most definitely the "Flatlands"

Indeed, plenty of water.

[psychocandy]

Rough estimate. Since I income split not a huge amount goes over the threshold. (yes yes wave your todgers fellas!). And with 24 month rule coming up for me. :-(

Reckon about £300 or so a month worse off take home. Not end of world but still.

[andrewhillierhopkins]

Yes thats what my accountant told me. Can't work out in my head how the removal of grossing up makes that much difference though?

Apart from meaning your gross is now less into the next tax bracket? i.e. £30K is now £30K not £33.33K. (I guess £3.33K into 40% means 32.5% on this now not 7.5% so few quid if your close to or over the 40%). Am I right here?

The removal of the 10% tax credit means that whereas previously you could take (under 2016/17 tax bands) £31.5k net dividends tax free (before you hit the 25% higher rate tax on the net dividends, now you take £35k net dividends before you hit the 32.5% higher rate tax - BUT now you pay 7.5% on £27k of the dividends.

[Maslins]

If a client's insistent on paying no personal tax, then the amount they can withdraw is indeed greatly reduced (from ~£38k to ~£16k).

One benefit of the grossing up/notional dividend tax credit being removed, is that you can take a fair chunk more in dividends before you hit higher rates. So, despite the basic rate tax bracket not increasing that much, whereas last year with an ~£8k salary you could take ~£30k divis before hitting higher rates, it's not ~£35k.

Realistically not many clients would have specifically taken £35k dividends last tax year, but if they did and compare like with like this tax year, there's virtually no difference (as previously you'd be ~£5k in higher rate, whereas now you're just about all in basic rate). In practice though I realise for many people you're comparing ~£30k divis last tax year and £nil personal tax with ~£35k divis this tax year and ~£2k personal tax.

It should actually be quite a bit simpler from now on...but I think where so many people had got their head around the complexities of the notional dividend tax credit, it being removed confuses things.