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

Archi_Bald

Nocto wrote: »

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.

I think you are misreading this. The £11,000 is an income tax allowance. Savings and dividends are treated separately.
https://www.gov.uk/income-tax-rates/current-rates-and-allowances

But you should check with a tax professional.

AndyT678

The original article seems to have gone now. I guess they took the criticism to heart!

Nocto

Archi_Bald wrote: »

I think you are misreading this. The £11,000 is an income tax allowance. Savings and dividends are treated separately.
https://www.gov.uk/income-tax-rates/current-rates-and-allowances

But you should check with a tax professional.

I fear you might be correct!

That said, if you read the notes for the dividend tax calculator link below I think the personal allowance does apply…

http://www.uktaxcalculators.co.uk/dividend-tax-calculator.php


I’m not 100% certain though, and of course they may have got it wrong.

redux

AndyT678 wrote: »

The original article seems to have gone now. I guess they took the criticism to heart!

Well, some personal circumstance examples could be found which simply didn't fit the article title, so fair enough.

More homework needed.

kidmugsy

I'd say that the £5k p.a. allowance for dividends is good news for shareholders only to the extent that it probably means that that amount is secure until the 2020 general election. And that gives 'em five years to move their shareholdings into pensions and ISAs.

redux

Archi_Bald wrote: »

I think you are misreading this. The £11,000 is an income tax allowance. Savings and dividends are treated separately.
https://www.gov.uk/income-tax-rates/current-rates-and-allowances

But you should check with a tax professional.

Yes, but dividend income is still counted as income for income tax purposes.

It's been the case though, as I understand things from some articles, that as the dividend tax credit has been 10%, and the taxation of income from dividends is also set as 10%, basic rate taxpayers have no further tax to pay. People whose income is below the tax allowance can't claim it back though.

So my understanding of that is that someone with no other income besides from their investments might currently receive a dividend income of £30 or £40k and pay no more tax

Under the new scheme they can reach £16 or £17k and above that pay 7.5% on dividends.

So someone on £15,000 of dividends should be unaffected either way, it seems, but this needs checking or confirming by someone who knows more than me.

It is bewildering though to read articles in the last 24 hours describing this as a tax cut and a tax hike, sometimes with both viewpoints at the same publication.

Nocto

redux wrote: »

Yes, but dividend income is still counted as income for income tax purposes.

It's been the case though, as I understand things from some articles, that as the dividend tax credit has been 10%, and the taxation of income from dividends is also set as 10%, basic rate taxpayers have no further tax to pay. People whose income is below the tax allowance can't claim it back though.

So my understanding of that is that someone with no other income besides from their investments might currently receive a dividend income of £30 or £40k and pay no more tax

Under the new scheme they can reach £16 or £17k and above that pay 7.5% on dividends.

So someone on £15,000 of dividends should be unaffected either way, it seems, but this needs checking or confirming by someone who knows more than me.

It is bewildering though to read articles in the last 24 hours describing this as a tax cut and a tax hike, sometimes with both viewpoints at the same publication.

That’s my understanding of it. If correct then I’ll just about squeak by unaffected.

I have been receiving a tax rebate from my bond and bank interest due to my unused personal tax allowance, so I seem to still benefit from it despite a lack of earned income.

It is as clear as mud though.

Either way I’ll not be losing any sleep - you know what they say about death & taxes!

Archi_Bald

redux wrote: »

Yes, but dividend income is still counted as income for income tax purposes.

Are you saying that dividends are subject to both, income tax and dividend tax?

bowlhead99

Archi_Bald wrote: »

redux wrote: »

Yes, but dividend income is still counted as income for income tax purposes.

Are you saying that dividends are subject to both, income tax and dividend tax?

No, just that dividend income is simply a type of income, and if you are not using your general annual income tax allowance for earned income such as wages, you can use it for dividends, as well as being able to use your special annual dividend tax allowance for dividends.

If you had total income of, say, £20k, and over £5k of that is dividends, you will be paying some tax on those dividends where previously you didn't as long as you kept under the high rate band.
Most countries make people pay tax on dividends so a large allowance and then a low 7.5% rate does not sound like too much hardship, even though it is clearly more than the zero that someone with £20-£40k of total income would have paid on dividends in the past.

The average person (who has well below £100k of unwrapped equity investments) is not going to pay any of this dividend tax. However someone who was self-employed with their own company and hoped to extract their profits via paying tax-free dividends to themselves and a relatively low rate of corporation tax to HMRC - rather than having the company paying them a taxable salary and national insurance bills - will now have more things to consider; they are likely to be net losers under the new scheme.

Nocto

Archi_Bald wrote: »

Are you saying that dividends are subject to both, income tax and dividend tax?

My understanding has always been as follows (tax bands rounded off).

Dividend tax:

Basic £0 - £32,000 10% (if non or basic rate tax payer no tax due (or reclaimable) due to 10% tax credit)

£32,000 - £150,000 (32.5% less 10% tax credit)

£150,000 + (37.5% less 10% tax credit)


If entitled to personal allowance it still applies. So:

With no income other than dividends you could receive about £42,000 before owing further tax. (Complicated by the fact that the tax credit is added when calculating gross dividend income.)

If say you had an earned income of £25k plus £20k net dividends (£22,222 gross), you would owe additional tax on the £5k dividends in the higher tax band.

Dividends counted as the “top slice” of income, so if the dividends put you into a higher band the additional tax was at the lower dividend rate not the income rate.

A very beneficial system if most or all of your income was dividends. But perhaps it was too good to last!


Edit: The 32.5% & 37.5% rates for gross dividend (divide by 9 & times 10 the net dividend received), so you would owe 25% or 30.5% tax on net dividend income falling in these bands.

I think my figures are correct!