April 2016-Personal Tax Accounts (savings & divi allowances)

Archi_Bald

How many BR tax payers have more than £15,240 a year to invest? And how many of them will have existing un-wrapped investments that pay more than £5K in dividends each year?

bowlhead99

C_Mababejive wrote: »

Exactly,,what they did at the last budget was announce a tax rise for basic rate taxpayers and at the same time, make it sound like they were giving people something extra...a triumph of spin..which is only now beginning to unravel..

No, they gave a tax rise for basic rate taxpayers who were generating over £5k of passive dividend income from investing in equity investments in excess of the equity investments that they could fit into a tax wrapper (which can take £15k a year of investment monies not counting separate allowances for VCTs etc).

And this 7.5% tax for basic taxpayers... only when already getting more than £5000 of taxable dividends which, using a yield of 1.6% for a global developed-world equities index implies £300k of investments outside tax wrappers....is going to fund the eradication of the 10-20% tax on savings interest up to £1000 a year for millions of basic rate taxpayers (allowing them to have up to 33k of savings at 3% gross and pay no tax on their bank interest even they have a lot more interest income than the median household).

So you can say it is a triumph of spin which is now unravelling as you finally choose to look into the mechanics of it... but those of us who already looked at it when it came out, might think it makes more sense than keeping the antiquated 'notional tax credit on dividend income' system - even though there will clearly be winners and losers. Losers include people who work for themselves in contractor jobs and hoped to avoid tax by paying themselves minimal salary and large dividends - will now be rather less efficient to do that.

melbury

bowlhead99 wrote: »

No. Nothing is deducted at source NOW either. I'm sure this has come up before on threads you were in...
HTH

Honestly can't remember - if I did ask before then sorry:o

Thanks for the very informative response.

C_Mababejive

bowlhead99 wrote: »

No, they gave a tax rise for basic rate taxpayers who were generating over £5k of passive dividend income from investing in equity investments in excess of the equity investments that they could fit into a tax wrapper (which can take £15k a year of investment monies not counting separate allowances for VCTs etc).

And this 7.5% tax for basic taxpayers... only when already getting more than £5000 of taxable dividends which, using a yield of 1.6% for a global developed-world equities index implies £300k of investments outside tax wrappers....is going to fund the eradication of the 10-20% tax on savings interest up to £1000 a year for millions of basic rate taxpayers (allowing them to have up to 33k of savings at 3% gross and pay no tax on their bank interest even they have a lot more interest income than the median household).

So you can say it is a triumph of spin which is now unravelling as you finally choose to look into the mechanics of it... but those of us who already looked at it when it came out, might think it makes more sense than keeping the antiquated 'notional tax credit on dividend income' system - even though there will clearly be winners and losers. Losers include people who work for themselves in contractor jobs and hoped to avoid tax by paying themselves minimal salary and large dividends - will now be rather less efficient to do that.

Yes,,a lot of people rely on divi income and people who previously didnt pay tax on it will now have to pay tax and basic rate taxpayers who hover not too far from the basic rate upper limit will find themselves paying a fair bit more.

For those who are experts in the finance industry all this stuff is clear but for many,well they are bewildered and will see it just as another tax hike, a penalty for thrift, personal responsibility and wealth building to provide income and be self sufficient.

Part of me thinks HM Gov will expect lots of people to sell shares and pump money into the economy.

As you say, it will close a long used loop hole to lower tax bills for self employed and similar who have paid lower rates of tax via dividends from limited companies.

polymaff

Archi_Bald wrote: »

How many BR tax payers have more than £15,240 a year to invest? And how many of them will have existing un-wrapped investments that pay more than £5K in dividends each year?

Just about every Personal Services Company shareholder in the UK.

(100,000+)

talexuser

bowlhead99 wrote: »

Losers include people who work for themselves in contractor jobs and hoped to avoid tax by paying themselves minimal salary and large dividends - will now be rather less efficient to do that.

I have a suspicion that this might have been a driving force behind the changes - rise in self employment, and people paying themselves a salary just enough to qualify for a state pension, and then boosting their income with large payments of dividends from their company.

What's next to tackle? I suggest salary sacrifice schemes that lower NI and tax contributions?

polymaff

C_Mababejive wrote: »

Yes,,a lot of people rely on divi income and people who previously didnt pay tax on it will now have to pay tax and basic rate taxpayers who hover not too far from the basic rate upper limit will find themselves paying a fair bit more.

And those who hover just above, less. As for "a lot of people" - can you quote data?

C_Mababejive wrote: »

As you say, it will close a long used loop hole to lower tax bills for self employed and similar who have paid lower rates of tax via dividends from limited companies.

They don't pay lower rates - but they do avoid NI.

Time to swat that bee

polymaff

talexuser wrote: »

I have a suspicion that this might have been a driving force behind the changes - rise in self employment, and people paying themselves a salary just enough to qualify for a state pension, and then boosting their income with large payments of dividends from their company.

As George Osborne made that patently clear in his statements, no marks for perception.
Incidentally, the salary they pay themselves is not aimed at getting the state pension but to keep them just at the top of the employee and employer 0% NI rate band.

C_Mababejive

Perhaps the answer for some people is to liquidate money tied up in funds within ISAs and purchase shares, thus cutting charges,sheltering the shares and then selling duplicate shareholdings which are held outside of the ISA(s).. Of course one would shelter the higher yielding ones first..

DawlishDilbert

Hello.

I have a simple question which I can't find an answer to anywhere! Perhaps it's an 'unknown' at the moment.

Is interest from ISAs (already tax free of course) included in the £1000 allowance? If not, I guess that's another 'plus' for ISAs as although one would need to check the interest rate on offer, one wouldn't need to include it in the £1000.

Thanks.

DD