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• FIRST POST
• Okrib
• By Okrib 13th Mar 17, 12:55 PM
• 84Posts
• 47Thanks
Okrib
I’m struggling to work this out, and online calculators seem to be throwing up different answers so thought I’d check in to see if anyone can advise…

Situation(s) as follows:

Total dividend of Ł48,000 between two partners who are captive shareholders in a private company (neither is employed by the company in question). A works, and is a higher rate tax payer. B doesn’t work.

Currently, the best solution is as follows:

A - Ł5,000 to utilise the dividend allowance
B - Ł43,000, of which Ł11,000 (personal allowance) and Ł5,000 (dividend allowance) leaving Ł27,000 taxable at 7.5% (Ł2,025) and a net of Ł40,975

Total net of Ł45,975

Going forward on the same dividend:

A - Ł2,000
B - Ł46,000, of which Ł11,500 and Ł2,000 used respectively, leaving Ł31,500 taxable at 7.5% (Ł2,362.5), Ł1,000 taxable at 32.5% (Ł325) and a net of Ł43,312.50

Total net of Ł45,312.50 (-Ł662.5)

This doesn’t seem to tally up with reports as to how much taxpayers will lose out by, which suggests it should be Ł225 a year? Are my calculations wrong?

And assuming a dividend of Ł60,000, are these calculations correct?

Current:

A - Ł5,000
B - Ł55,000, with deductions of Ł16,000 leaving Ł39,000 taxable. Ł32,000 at 7.5% (Ł2,400) and Ł7,000 at 32.5% (Ł2,275). Net of Ł50,325

Total net of Ł55,325

Going forward:

A - Ł2,000
B - Ł58,000, deductions of Ł13,500 leaving Ł44,500 taxable. Ł31,500 at 7.5% (Ł2,362.50) and Ł13,000 at 32.5% (Ł4,160). Net of Ł51,477.50.

Total net of Ł53,477.50 (-Ł1,847.50). Again, this figure seems at odds with the figures quoted for the impact of this change.

Am I getting the calculations wrong, or is it incorrect to say that basic rate payers lose out by Ł225 / year and higher rate payers by Ł975 / year?
Page 1
• Pennywise
• 13th Mar 17, 1:07 PM
• 9,103 Posts
• 16,509 Thanks
Pennywise
You're getting the figures muddled because they're not "like for like". If you do the sums with the same respective dividends to A and B for each tax year, you'll get different results in line with the published affects.

What you're doing is changing the dividend split between A and B as well which muddies the waters as you're increasing the income of B pushing them into higher rate tax.

Another thing, though, is that the Ł5k dividend "allowance" is a zero rate band of it's own, so it uses some basic rate band, so you don't have Ł5k dividend allowance and Ł32k basic rate band. In your second scenario, the Ł60k, split Ł55k to B, their current year tax will be Ł5,925 being

Ł11,000 tax free personal allowance
Ł5,000 zero tax
Ł27,000 7.5% basic rate (Ł32k less Ł5k zero rate dividend band)
Ł12,000 32.5% higher rate

So total tax is Ł5,925.
• anselld
• By anselld 13th Mar 17, 4:49 PM
• 5,280 Posts
• 4,812 Thanks
anselld
If the couple own the shares jointly you can't just split the dividend how you like to minimise tax. It must be split 50:50.

Or are you planning to change share ownerships?
• kidmugsy
• By kidmugsy 13th Mar 17, 4:51 PM
• 9,618 Posts
• 6,368 Thanks
kidmugsy
Why not (a) transfer some personal allowance from B to A to save him some HRT? (b) make some pension contributions to avoid higher rate tax?

Anyway "going forward" you should be using the future numbers: for 18/19 personal allowance will be something above Ł11,500 and the higher rate threshold will be above Ł45k. Those changes may well leave some people better off.
• polymaff
• By polymaff 13th Mar 17, 8:11 PM
• 1,680 Posts
• 716 Thanks
polymaff
Do you understand the implications of what-if-ing with the amounts paid to each shareholder?

As the others have said, you are not being consistent and misunderstand tax on dividends.

The Ł225 to Ł975 range is correct for basic and higher rate tax payers.
Last edited by polymaff; 13-03-2017 at 8:19 PM.
• TheCyclingProgrammer
• 13th Mar 17, 9:16 PM
• 2,684 Posts
• 1,511 Thanks
TheCyclingProgrammer
The impact of the dividend allowance change will probably be largely neutralised for those whose dividends are below the higher rate threshold due to the increase in the personal allowance and the higher rate band.

Having said that, I wouldn't be at all surprised to see the dividend tax rate to increase too, possibly in the Autumn budget, to compensate (especially with the corporation tax rate being reduced too).
• Apodemus
• By Apodemus 14th Mar 17, 7:18 AM
• 838 Posts
• 624 Thanks
Apodemus
The impact of the dividend allowance change will probably be largely neutralised for those whose dividends are below the higher rate threshold due to the increase in the personal allowance and the higher rate band.
Originally posted by TheCyclingProgrammer
Unless you are a Scottish taxpayer!
• polymaff
• By polymaff 14th Mar 17, 9:09 AM
• 1,680 Posts
• 716 Thanks
polymaff
The impact of the dividend allowance change will probably be largely neutralised for those whose dividends are below the higher rate threshold due to the increase in the personal allowance and the higher rate band.
Originally posted by TheCyclingProgrammer
Can't agree with all of that. The increase in the PA is higher than present inflation, so there's a bit to spare - at present. What inflation will be, who knows, but I suspect that there will be little of the rise in the PA spare that can then be said to mitigate other rises in taxation.
• Okrib
• By Okrib 14th Mar 17, 1:02 PM
• 84 Posts
• 47 Thanks
Okrib

I understand it's confusing, and I'm not necessarily comparing like with like, I'm trying to understand the most efficient way to structure things between the two partners going forward.

Shares are owned individually but can be transferred freely between the married couple.

There is no option for pension contributions, all the monies are required.
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