Mixed Budget News

jimjames

Just seen that dividend tax is changing and you'll now get a £5000 annual allowance. On the bad news, BTL income is being taxed more with restriction on interest tax relief.

Will be interesting to see how it pans out

Archi_Bald

jimjames wrote: »

Just seen that dividend tax is changing and you'll now get a £5000 annual allowance.

only applies to unwrapped investments. No change for ISA and SIPPs

jimjames wrote: »

On the bad news, BTL income is being taxed more with restriction on interest tax relief.

If I understand correctly, this only impacts you if you are a higher rate tax payer. Can you set up your BTL as a business and benefit from lower corporation tax?

talexuser

Question: does this mean you get £5000 of unwrapped dividends a year gross, and then pay income tax on them?

jimjames

talexuser wrote: »

Question: does this mean you get £5000 of unwrapped dividends a year gross, and then pay income tax on them?

It sounds like no income tax on the first £5000 unwrapped.


Good news as it's not always possible to have everything inside an ISA.

Archi_Bald

The dividend tax credit will be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers.

The rates of dividend tax will be set at 7.5%, 32.5% and 38.1%. An increase of 7.5% where dividend income exceeds £5,000.

Dividends paid within pensions and ISAs will remain tax-free and unaffected by these changes.

Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax.

85% of those who receive dividends will see no change or be better off.

Over a million people will see their tax cut.

From the budget speech

Still looking for the actual budget document for further detail. EDIT: here we go: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443232/50325_Summer_Budget_15_Web_Accessible.pdf

SnowMan

talexuser wrote: »

Question: does this mean you get £5000 of unwrapped dividends a year gross, and then pay income tax on them?

We need to see the detail but I think it means:

On the excess of unwrapped dividends over £5,000 you will now pay

0% for non-taxpayers (?)
7.5% for basic rate taxpayers,
32.5% for higher rate taxpayers and
38.1% for additional rate taxpayers.

It was previously on all unwrapped dividends (including the first £5,000)

0% for non-taxpayers
0% for basic rate taxpayers
25% for higher rate taxpayers
30.56% for additional rate taxpayers

However the difference in treatment can change whether you are a basic rate or higher rate taxpayer, as the first £5,000 doesn't appear to be counted in terms of whether you are a basic rate or higher rate taxpayer etc, and the extent to which dividends push you into a higher band is different also? And the dividends presumably are no longer notionally increased by the tax credit to determine which band you are in? So the above oversimplifies where the dividends themselves affect what band you are in.

joerugby

We are retired and at the moment we receive about £12,000 pa in unwrapped dividends, all in Mrs Joe's name as she's a basic rate taxpayer

Time for a rethink prior to next April

plunt

hmmm but that tax credit portion always meant that you were paying 10% without even seeing it hit your account. so does that mean you will technically be getting higher dividends in ISA's now?

Or do tax credits still exist in ISA's but just not unwrapped investments? Im a little confused here!

Example of a recent dividend i got (In an Iweb ISA)

Stock HSBC HOLDINGS PLC ORD USD0.50
XD Date: 21/05/2015
Shares Held on XD Date: 245
Record Date: 22/05/2015
Pay Date: 08/07/2015
Issue Date: 07/07/2015
Dividend Rate: 0.0637093
Net Dividend Paid: 15.61
Tax Rate: 10.00%
Tax Credit:1.73
Gross Dividend:17.34

SnowMan

plunt wrote: »

hmmm but that tax credit portion always meant that you were paying 10% without even seeing it hit your account. so does that mean you will technically be getting higher dividends in ISA's now?

Or do tax credits still exist in ISA's but just not unwrapped investments? Im a little confused here!

Example of a recent dividend i got (In an Iweb ISA)

Stock HSBC HOLDINGS PLC ORD USD0.50
XD Date: 21/05/2015
Shares Held on XD Date: 245
Record Date: 22/05/2015
Pay Date: 08/07/2015
Issue Date: 07/07/2015
Dividend Rate: 0.0637093
Net Dividend Paid: 15.61
Tax Rate: 10.00%
Tax Credit:1.73
Gross Dividend:17.34

No change for ISAs and SIPPS.

You get paid the same £15.61 dividend before and after the change

Before you have been paid a £15.61 dividend (notionally that was £17.34 including tax credit, but that is irrelevant as all that matters is that you were paid £15.61)

After you will be paid a £15.61 dividend (with no mention of tax credit as they no longer exist).

talexuser

from the pdf:

1.187 Combined with the increases the government has made to the personal allowance and
the introduction of the Personal Savings Allowance, from April 2016 individuals will be able
to receive up to £17,000 of income per annum tax-free, and separately invest up to
£15,240 per annum through an ISA tax-free.

Where does £17000 comes from if the new personal allowance will be £11000 with £5000 of savings allowance?

Also

Insurance tax get a big hike up to 9.5% !!

plunt

hmmm correct me if im wrong but essentially a company was paying out a dividend of £111.11, of which 11.11 was getting paid straight to the government, so i would end up with £100. so if that middle part has now been stopped, does that then mean companies can just pay out that £111.11, in essence increasing dividends.

Need to brush up on my dividend tax credit knowledge before it disappears!

talexuser wrote: »

from the pdf:

1.187 Combined with the increases the government has made to the personal allowance and
the introduction of the Personal Savings Allowance, from April 2016 individuals will be able
to receive up to £17,000 of income per annum tax-free, and separately invest up to
£15,240 per annum through an ISA tax-free.

Where does £17000 comes from if the new personal allowance will be £11000 with £5000 of savings allowance?

Also

Insurance tax get a big hike up to 9.5% !!

dont forget the tax free allowance on savings interest of £1000 on basic rate and £500 for higher rate