Mixed Budget News

masonic

SnowMan wrote: »

The £5,000 savings band is currently (2015/2016) based on someone having income excluding dividend income below £15,600.

Hmm, I think this is the key point of disagreement between the two camps. The HMRC Savings and Investments Manual covering the changes to the starting rate for savings is SAIM1112. It states:

Where an individual’s non-savings income exceeds the starting rate for savings limit, the starting rate for savings is not available.

...with no other exclusions mentioned. So it is reasonable to assume that dividend income is not excluded. I wanted to find a positive statement to that effect from an official source, but am struggling to do so. However, I did find the following article that does seem to support this view.

http://www.thisismoney.co.uk/money/saving/article-3117390/New-rule-lets-claim-5-000-tax-free-allowance-claim.html

Those whose salary, pension or other ‘non-savings’ income totals more than £15,600 (£15,660 if you were born before April 6, 1938) can’t claim the special tax break.

But you can get it if your total income from non-savings is below this level. Depending on your salary, you can register as a non-taxpayer or claim back some of the tax automatically deducted from your savings.

Which you do depends on the split between your savings and non-savings income.

To work out which category you’re in, add up your total non-savings income. This includes salary, pensions, benefits, dividends and rental income from any second home or buy-to-let investments.

So I think non-savings income includes income from dividends, and hence the originally announced £16,800 threshold for 2016/17 already included dividends within the taxable income figure and the new dividend allowance has no bearing on this.

masonic

talexuser wrote: »

I think the savings allowance has been solved now. But I am still unsure about the dividends in this scenario:

Say you are a basic taxpayer below the higher rate threshold, say income is £41000 - the threshold is £43000, and then get £4000 of unwrapped dividend income.

Does this mean £2000 of the dividend is tax free, but £2000 gets taxed at 32.5% but you avoid 40% income tax on the excess?

Or do you lose all the allowance so tax is £2000 at 7.5% and £2000 at 32.5%, but still avoiding 40% on the excess?

All taxpayers can receive up to £5,000 of dividends from next year tax free.

SnowMan

masonic wrote: »

Hmm, I think this is the key point of disagreement between the two camps. The HMRC Savings and Investments Manual covering the changes to the starting rate for savings is SAIM1112. It states:

...with no other exclusions mentioned. So it is reasonable to assume that dividend income is not excluded. I wanted to find a positive statement to that effect from an official source, but am struggling to do so. However, I did find the following article that does seem to support this view.

http://www.thisismoney.co.uk/money/saving/article-3117390/New-rule-lets-claim-5-000-tax-free-allowance-claim.html


So I think non-savings income includes income from dividends, and hence the originally announced £16,800 threshold for 2016/17 already included dividends within the taxable income figure and the new dividend allowance has no bearing on this.

You could well be right on dividends being treated as income in deciding whether your income was below £15,600 to enable you to get some or all of your savings interest gross.

I was relying on the help notes to the R85 at

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414637/R85_Helpsheet_150318.pdf

This explicitly tells you not to include dividends when calculating total income, prior to comparing with the £15,600 figure!

Given the purpose of the R85 is to tell you whether you can have your interest paid gross this implies that dividend income isn't included in taxable income for this purpose.

Their calculator is similar in not explicitly mentioning dividends in the 'other income' help notes.

http://www.hmrc.gov.uk/tools/r85/r85-2015.htm

It seems bizarre that you would be allowed to be paid gross interest through the R85 in circumstances where you had significant dividend income which meant that you would ultimately owe HMRC for the savings tax not deducted.

TCA

masonic wrote: »

So I think non-savings income includes income from dividends, and hence the originally announced £16,800 threshold for 2016/17 already included dividends within the taxable income figure and the new dividend allowance has no bearing on this.

There was a bit of a discussion on the dividends issue in March/April when the rule was first announced. I linked the HMRC helpsheet for form R85, for registering for gross interest, which specifically says to exclude dividend income to calculate an annual income figure to see if you're below the £15,600 amount. See what you make of this:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414637/R85_Helpsheet_150318.pdf

TCA

SnowMan wrote: »

I was relying on the help notes to the R85 at

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414637/R85_Helpsheet_150318.pdf

This explicitly tells you not to include dividends when calculating total income.

You beat me to it SnowMan!

SnowMan

TCA wrote: »

You beat me to it SnowMan!

:T:beer:

I'm glad you had independently noticed the same thing.

I wonder what the correct answer is here.

masonic

SnowMan wrote: »

It seems bizarre that you would be allowed to be paid gross interest through the R85 in circumstances where you had significant dividend income which meant that you would ultimately owe HMRC for the savings tax not deducted.

Agreed. It is clear that the R85 helpsheet is directing people not to include dividends in the calculation and would not do so if it should be included. However, this creates the situation where someone can currently earn a £10k salary and £30k in dividends and still get the £5k nil rate band for their savings interest, which seems a little odd to say the least.

What is even more interesting is that dividends were included in the 2014 form: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368535/r85-helpsheet.pdf

Clear as mud, eh?

TCA

masonic wrote: »

What is even more interesting is that dividends were included in the 2014 form: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368535/r85-helpsheet.pdf

Clear as mud, eh?

The plot thickens. I see the 2014 form refers to "company dividends". That has me wondering whether this just refers to people running limited companies and paying themselves dividends instead of salary. Who knows.

Back to watching the tennis.

bowlhead99

masonic wrote: »

Agreed. It is clear that the R85 helpsheet is directing people not to include dividends in the calculation and would not do so if it should be included. However, this creates the situation where someone can currently earn a £10k salary and £30k in dividends and still get the £5k nil rate band for their savings interest, which seems a little odd to say the least.

Your dividends are always taxed as the 'top slice' of your unearned income - which is convenient because they have their own special tax rates, and so it would make things very messy if they fell somewhere in the middle of your stack of income.

As they are always looked at as the top slice of your pile of income, it is not possible for them to 'get in the way' of you accessing the 0% band for interest income that sits right on top of your general annual personal allowance of £10600. So someone with a £10k salary and £5k interest can have all their interest fall into the [personal-allowance and 0%-on-interest bands], whether or not they have any dividends on top of all that.

The dividend income comes on top of that and is assessed at dividend taxation rates (which in the current year might have some of it at effective 0%, some at 25% or more, depending how much of it you have)

What is even more interesting is that dividends were included in the 2014 form: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368535/r85-helpsheet.pdf

Clear as mud, eh?

Previously there wasn't a special 0% band for interest, so basically you'd only be able to have no tax to pay on your interest if it fitted inside your normal annual personal allowance, age related allowance, marriage allowance, blind allowance.

They were loathe to allow the banks to pay you gross if you looked like you had an income that exceeded the allowances. So for simplicity they said tell us all your income from various sources (which is only an estimate anyway) and if it all fits within your allowances then we'll let the bank pay you gross, but if it doesn't, just let the banks get on with their normal routine of paying you net like everyone else. Then if you're out of pocket at the end of the year feel free to tell us - when you know your actual income for the year - and we'll sort you out then.

SnowMan

Certainly it is the top slicing treatment of dividends that would make you think they might be excluded

http://www.hmrc.gov.uk/manuals/saimmanual/SAIM1090.htm

Broadly, therefore, the first slice of a person’s income comprises earnings, pensions, taxable social security payments trading profits and income from property. The next slice is savings income, and dividend income is the top slice.

But there is nothing stopping them legislating it differently.

And the above link actually links to the 0% 2015/2016 savings band page which vaguely talks about non-savings income without explicitly clarifying that the slicing treatment applies here and so non-savings income excludes dividends.

Whether someone is a higher rate taxpayer determines whether someone can use the marriage allowance to transfer 10% of their personal allowance, which depends on what dividends they receive so there can be some interactions between slices going on so we can't assume anything here.

But yes as bowlhead says you can expect the 'correct answer' here to be that dividends are excluded in determining whether the 0% savings band can be accessed.