UK Tax Haven?

Radioactive

Could someone please check the following calculation and confirm whether or not it is correct.

Following the change to dividend tax from 2016/17, I have calculated that an individual with no income other than that from holding non-ISA shares (and some bank account interest), could receive the following tax-free income per annum from 2016/17:

£10,800 (Personal Allowance)
£31,900 (Basic Rate tax band)
£ 5,000 (Dividend Allowance)
£ 1,000 (Tax-free bank interest)
£11,100 (CGT allowance on sale of shares)

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£59,800
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Of course in practice this would need some careful juggling (and a sizeable capital amount) to achieve, but for those who can achieve it, the UK represents an attractive tax haven. The £59,800 tax-free income is in addition to further tax-free income received from any ISA.

colsten

You should really be asking tax questions on the tax board but I think there are a few things wrong with your numbers. For example, the personal allowance in 2016-17 will be £11,000, and you can't use the basic rate tax band as an allowance.

There has been a longish discussion about the new dividend allowance: https://forums.moneysavingexpert.com/discussion/5282827

masonic

The basic rate tax band is 20% for income or 7.5% for dividends, so they will not receive that £31,900 tax free [edit: there is actually £32,000 in that band]. You've also missed the £5,000 nil rate band on savings interest for low income. So, an individual whose only income is investment income and savings interest could receive the following income:

£11,000 (Personal Allowance)
£ 5,000 (Nil rate band on savings interest)
£ 5,000 (Dividend Allowance)
£ 1,000 (Savings interest allowance)

And £11,100 (CGT allowance on sale of shares)

Total: £33,100 without paying any tax.

They would need a lot of cash savings to use up their personal allowance plus nil rate band plus savings allowance. Someone could work a part time job to use up most of their personal allowance (but may pay some national insurance) and still make use of all of the other allowances and tax free bands.

Glen_Clark

masonic wrote: »

The basic rate tax band is 20% for income or 7.5% for dividends, so they will not receive that £31,900 tax free [edit: there is actually £32,000 in that band]. You've also missed the £5,000 nil rate band on savings interest for low income. So, an individual whose only income is investment income and savings interest could receive the following income:

£11,000 (Personal Allowance)
£ 5,000 (Nil rate band on savings interest)
£ 5,000 (Dividend Allowance)
£ 1,000 (Savings interest allowance)

And £11,100 (CGT allowance on sale of shares)

Total: £33,100 without paying any tax.

They would need a lot of cash savings to use up their personal allowance plus nil rate band plus savings allowance. Someone could work a part time job to use up most of their personal allowance (but may pay some national insurance) and still make use of all of the other allowances and tax free bands.

Does this mean that an individual whose ONLY income was £6,000 in unwrapped dividends would have to pay tax on them?

bowlhead99

Glen_Clark wrote: »

Does this mean that an individual whose ONLY income was £6,000 in dividends would have to pay tax on them?

No. An individual has an annual personal allowance, of £10,600 this year, £11000 next. That is a bigger number than £6000.

redux

The amount actually coming in and not taxed would be larger if you're using the capital gains allowance.

For instance, bought at £5000 sold at £15000 gain £10000.

Or bought £50000 sold £60000 gain £10000

jimjames

Radioactive wrote: »

Could someone please check the following calculation and confirm whether or not it is correct.

Following the change to dividend tax from 2016/17, I have calculated that an individual with no income other than that from holding non-ISA shares (and some bank account interest), could receive the following tax-free income per annum from 2016/17:

£11,100 (CGT allowance on sale of shares)

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Others have covered the error in the basic rate tax band which is paid at 20%.
CGT is not payable on income but on capital gains so your suggestion of total tax free income isn't correct.

kidmugsy

Is anyone going to name the individual who is expected to have that pattern of income next tax year? I suspect that he's Mr Nobody.

Glen_Clark

kidmugsy wrote: »

Is anyone going to name the individual who is expected to have that pattern of income next tax year? I suspect that he's Mr Nobody.

That may be so, but its missing the point. Examples are given to show how the system works - without adding unnecessary complications.

redux

kidmugsy wrote: »

Is anyone going to name the individual who is expected to have that pattern of income next tax year? I suspect that he's Mr Nobody.

£1M lottery winner who gives up work

bowlhead99

Glen_Clark wrote: »

That may be so, but its missing the point. Examples are given to show how the system works - without adding unnecessary complications.

But it's only by adding practical, real life "complications" that you can assess the question posed by the OP, being "UK tax haven?"

Certainly someone with circa 60k or more of income and gains may prefer to be somewhere with a low income tax rate and no CGT such as Hong Kong, Singapore, BVI or Channel Islands, or perhaps UAE if you can put up with the human rights issues.