Reduction of Dividend Allowance?

Thrugelmir

polymaff wrote: »

to see a Conservative government attempting to rip that compact to pieces.

The majority of people in this country would consider it only fair that the burden of taxation is more equitable. The self employed still have a considerable advantage over the employed on a straight tax basis. That's without the personal expenditure that gets paid through their trading activities. Self employed has become a very loose term. As Companies themselves outsource to avoid incurring employers NIC.

Apodemus

Since I am not in the wealthy category (basic rate tax payer), I must be in the dim group. My dividends, all from unwrapped investments, earn me just over £2k, so I will be caught by the tax change. Easily sorted by moving some to an s&s ISA. But since there was no real benefit to doing this before and annual costs to be borne now that I didn't have before, I would reject the suggestion that I was dim to have been holding unwrapped shares.

masonic

Apodemus wrote: »

Since I am not in the wealthy category (basic rate tax payer), I must be in the dim group. My dividends, all from unwrapped investments, earn me just over £2k, so I will be caught by the tax change. Easily sorted by moving some to an s&s ISA. But since there was no real benefit to doing this before and annual costs to be borne now that I didn't have before, I would reject the suggestion that I was dim to have been holding unwrapped shares.

Yes, it seems to have fallen by the wayside that, for basic rate taxpayers, this is a two-step change that has resulted in their ability to receive dividends without a tax liability being significantly eroded, whereas many higher rate taxpayers will be better off than they were before the original change.

theEnd

masonic wrote: »

whereas many higher rate taxpayers will be better off than they were before the original change.

How's that?

masonic

theEnd wrote: »

How's that?

They will be able to earn £2000 of dividends tax free. Before the original change they paid tax on all of their unwrapped dividend income. Only those with a very large dividend income (>£26.7k >£8.65k) will be worse off owing to the slightly higher rate of tax in force now.

jimjames

masonic wrote: »

They will be able to earn £2000 of dividends tax free. Before the original change they paid tax on all of their unwrapped dividend income. Only those with a very large dividend income (>£26.7k) will be worse off owing to the slightly higher rate of tax in force now.

Yes, personally the allowance made a big difference as it meant unwrapped investments could remain in my name rather than my wife's. That's still the case but will be affected if they drop the level further.

However with the NI changes apparently being reviewed if there is enough fuss this might be reconsidered too

Malthusian

Apodemus wrote: »

Since I am not in the wealthy category (basic rate tax payer), I must be in the dim group. My dividends, all from unwrapped investments, earn me just over £2k, so I will be caught by the tax change. Easily sorted by moving some to an s&s ISA. But since there was no real benefit to doing this before and annual costs to be borne now that I didn't have before, I would reject the suggestion that I was dim to have been holding unwrapped shares.

Interesting one. Most platforms do not charge you extra for opening an ISA (e.g. those that charge a percentage fee). However I know some like Alliance Trust do charge an annual fee per account.

That said, standard advice for most people would be to always use their ISA allowances - by moving unwrapped investments into ISAs if you don't have spare cash. And once that's done by moving unwrapped cash into cash ISAs (which can be transferred to S&S ISA at a later date).

The Hammond one-two punch on dividend allowance shows exactly why. Even if using your ISA allowances makes no difference to you now, it might do at a later date, when the Government changes the rules (or when you have a windfall). If you don't you've lost your unused allowances forever.

You decide your tax planning (as part of your overall investment strategy) first. Then you choose the investment platform that suits your tax planning (and overall strategy). By not using your ISA allowance because your investment platform would charge you an additional fee - by letting your investment platform decide your tax planning - you're letting the tail wag the dog. If the charging structure of your investment platform deters you from using your ISA allowance every year, use a different platform.

If you're only just over the £2,000 limit and using this year's ISA allowance is enough to return you to tax-free growth, then you've lost nothing. But if this had happened five years down the line and you had £4,000pa in wrapped dividends you might be considerably more irritated that you'd not made use of your allowances.

bowlhead99

I agree with all of that Malthusian.

The problem of changing goalposts is that we have had decades where the 'average' basic-rate-taxpayer smalltime investor (not the type of person who is interested in personal finance enough to be a forum regular) did not really need to worry about the odd few thousand (or even ten thousand) of dividends because basic rate tax on dividends was covered by a free tax credit (and this year and next, a large exemption instead).

With £100k invested and no prospect of needing to sell a large chunk in a hurry to be able to crystallise five-figure gains causing a CGT problem, ISAs for investments was perhaps thought of as a product for wealthier people, active investors, or something to save admin that might come with a cost because providers often don't want to administer a tax wrapper 'for free' unless they already get a decent annual platform/admin charge.

So, I can see that some people will be caught out because they had hitherto not expected their personal situation to change, and neither did they think a government would have a burning need to shakeup the relatively archaic 'dividend tax credit' system that everyone had put up with for ages. Obviously, if you knew it was a complex and archaic system you might expect it to change at some point, but many 'casual' investors would not think about the ins and outs of that, because the message from some online sources would be "there's not much benefit of S&S ISA for low rate taxpayers with equities and plenty of CGT allowance, use them instead for interest-bearing products instead such as cash or bond funds".

Hopefully the message is now loud and clear: ISA protects you from UK taxes on interest, company and fund dividends, property fund income distributions etc, as well as capital gains, and if you are serious about investing you might as well use them (now the market is more competitive and several providers only have relatively modest fees - or no explicit incremental fees at all - for ISA vs unwrapped.

System

Much of the discussion misses the point of having the tax-free dividend allowance, which was introduced when the dividend tax credit was removed. The rationale for the tax credit (and before that advanced corporation tax) was to avoid double taxation (the firm pays corporation tax on profits that are then distributed to shareholders who pay tax on the dividends). The government bragging about the low rate of corporation tax is laughable with this double taxation. It is an absurd way to solve the problem that some people used limited companies to avoid income tax. The solution would be to raise the rate of corporation tax and bring back the dividend tax credit thereby reducing the incentive to use limited companies to avoid income tax and avoiding double taxation.

masonic

Economic wrote: »

Much of the discussion misses the point of having the tax-free dividend allowance, which was introduced when the dividend tax credit was removed. The rationale for the tax credit (and before that advanced corporation tax) was to avoid double taxation (the firm pays corporation tax on profits that are then distributed to shareholders who pay tax on the dividends). The government bragging about the low rate of corporation tax is laughable with this double taxation. It is an absurd way to solve the problem that some people used limited companies to avoid income tax. The solution would be to raise the rate of corporation tax and bring back the dividend tax credit thereby reducing the incentive to use limited companies to avoid income tax and avoiding double taxation.

We can't do that because we're bribing businesses not to abandon us in the run up to us leaving the EU.