MSE News: Summer Budget 2015: Dividend tax overhaul: winners and losers

Former_MSE_Helen

A dividend overhaul will see basic and higher-rate taxpayers benefit, while top earners will pay more...

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Summer Budget 2015: Dividend tax overhaul: winners and losers




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[Deleted User]

So in effect the existing 10% tax credit is being replaced by a 7.5% tax credit and an additional £5k personal allowance?

westy22

This article is a vast over-simplification of what will happen and is, in effect, totally incorrect in its conclusions.

The only group for whom it will be tax-neutral is basic rate taxpayers earning up to £5,000 per annum in dividends.

Anyone earning above this (after the £5,000 allowance) will be paying more tax:

BRT payers will pay 7.5% tax (instead of the current nil tax)

HRT payers will pay 32.5% tax (instead of the current 25%)

ART payers will pay 38.1% tax (instead of the current 30.6%)

As a fairly typical example:

a company owner paying himself an £8,000 salary plus £30,000 in dividends from his company would have been paying no income tax under the current system. Under the new proposed system from April 2016 he would be paying approximately £1,650 income tax.

bowlhead99

westy22 wrote: »

This article is a vast over-simplification of what will happen and is, in effect, totally incorrect in its conclusions.

Hear hear.

The article states:

So, after the £5,000 tax-free allowance, basic-rate and higher-rate taxpayers will win – paying less tax on dividends earned.

Basic rate taxpayers cannot possibly 'win' because THEY CURRENTLY PAY ZERO TAX ON ANY DIVIDENDS THEY RECEIVE and under the new system THEY WILL HAVE TO PAY TAX ON DIVIDENDS THEY RECEIVE IN EXCESS OF THE ALLOWANCE.

M.S.E. are not really demonstrating that the "E." is warranted.

Archi_Bald

Article is also not entirely correct when saying

But from next year, all dividends earned will be tax-free up to £5,000

as all dividends continue to be tax free in ISAs and SIPPs

TheTracker

Possibly the most misleading MSE article yet, and thats saying something. More like MLE.

redux

Yesterday, a brief search produced some articles concluding that this was an increase of tax for most people, while some said it would be a decrease.

Clear as mud.

I don't think Osborne helped clarity by criticising a previous chancellor for preventing reclaim of dividend taxation in pension schemes, then towards the end of his remarks on dividends saying that dividends in pensions would stay tax free.

It can be said that people with larger incomes from dividends can instead have sheltered them in ISAs. But many ISA wrappers tend to have higher charges than holdings outside, e.g. 0.3 to 0.5% of total fund or a flat rate fee per year, so some people may not have bothered

Osborne's declared motive was to reduce avoidance by freelancers self-incorporating and receiving dividends rather than salary. But they've designed something that may turn out to be more complicated for some other people.

[Deleted User]

My reading of this is that the existing 10% credit for dividends (dividends are grossed up 90*100 & then taxed at 10% for BR tax payers with the amount of the gross up matching the tax payable) is being replaced by a 7.5% gross up (92.5*100) and a £5,000 personal allowance.

Higher rate tax payers already pay 32.5% tax on the grossed up dividends (25% being the effective rate of tax on the net dividends) so there is no change here just that again the tax credit they can deduct from there tax bill is 7.5% & not 10% but again they will have the new 5% PA.

jimjames

westy22 wrote: »

This article is a vast over-simplification of what will happen and is, in effect, totally incorrect in its conclusions.

The only group for whom it will be tax-neutral is basic rate taxpayers earning up to £5,000 per annum in dividends.

It may have no impact for BR taxpayers but I'd understood (maybe incorrectly) that higher rate taxpayers would benefit if their dividends were under £5000 as they would now pay no tax rather than needing to pay additional amounts before.

gingercordial

jimjames wrote: »

It may have no impact for BR taxpayers but I'd understood (maybe incorrectly) that higher rate taxpayers would benefit if their dividends were under £5000 as they would now pay no tax rather than needing to pay additional amounts before.

Yes, this is my case. I have just a few shares from a previous company's bonus scheme, and they are not in an ISA. I earn around £40/year in dividends (therefore never really worth the effort of finding out if they could go into an ISA). I am a higher-rate taxpayer and therefore currently pay tax on these, declared on my tax return, but under the new rules I will pay no tax at all.

Obviously it isn't much of a saving but it all helps.

Nocto

Okay, trying to get my head around this. Currently my only income is dividends & bond interest from non ISA investments.

I’ve downloaded a copy of the budget statement from HM Treasury. I quote the following paragraph:

“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 on income per annum tax-free.”

Which I’m reading as: I won’t owe any tax on the first £5,000 of dividends or £1,000 of bond interest, and as long as I don’t receive any other income I also benefit from my unused £11,000 personal allowance. Which all adds up to £17,000 before I owe any additional tax.

For income above that I’ll owe 7.5% (or more for higher tax bands) on dividends, and won’t be able to reclaim the 20% already deducted from bond interest.

Am I right?