Dividend tax question

ceeforcat

Pennywise wrote: »

Family allowance continue to be paid in the same way to the same person throughout regardless.

The amount received in family allowance, is however, taken back again in the tax code of the higher rate parent, i.e. more tax deducted from their wages.

So if mother has always received it into her bank account, that will continue. However, father, once he becomes a h/r taxpayer, will find the same amount deducted from his pay packet (or via his self assessment tax return).

Fun times ahead!!

May I repeat the situation of my friend who has just risen to the top of his scale after 26 years and is now higher rate by £960. His wife does not work and he could, in theory, lose child benefit for ALL SIX CHILDREN in addition to the tax and NIC on that pay increase. Anyone wish to work out the marginal rate on that £960? I make it 478%. (He will be taking out an AVC but the point remains valid.)

Pennywise

tyllwyd wrote: »

But child benefit is paid 4-weekly, so if you only become a higher rate taxpayer at the end of the tax year, you will have received child benefit for the whole of that year - but someone with exactly the same total taxable income as their basic salary wouldn't have received it. Will it be clawed back? I can imagine that filling in your self-assessment and finding that they want tax equivalent to a year's child benefit is going to be a bit of a shock. And if it has been paid to one person and reclaimed from another I can see that might lead to a few disagreements, especially if the relationship has broken down in the meantime ...

Yep, not the best thought out legislation, but the politicians have been told of the potential problems so there's hope that the methodology will be changed before it's introduced next year. Why not write to your MP to tell them that it's not going to work - the more people the better as the last Govt weren't that good at listening to accountants when they were going head first into making stupid unworkable changes. If they get loads of letters from ordinary Joe Publics as well, the message may just get through beforehand rather than them having to change it afterwards once it's proved to be a fiasco.

chrismac1

Note to ALL politicians. ANY tax change - stamp duty land tax, this loss of child benefit, loss of benefits for getting a job - which imposes more than a 100% marginal rate of tax is just plain STUPID, so build in a taper to your change to ensure this does not happen.

How hard can it be?

Tardigrade

One way around the tax on dividends is to hold the shares in a share ISA. I didn't realise when I made the original post and have only just found out that share dividends paid in an ISA don't need to go on your tax return.

For lower rate tax payers this isn't a benefit as you still suffer the 10% rate paid at source and can't claim back the tax credit.

However, for higher rate tax earners the saving is huge. Nothing at all to pay compared with 32.5% of the gross amount if held outside a share ISA.