MSE News: Cut to tax-free dividend allowance to be shelved

user987

dunstonh wrote: »

MSE is wrong. The Govt have confirmed that the dividend allowance and the annual allowance reduction are both going ahead.

MSE provides no chapter and verse for its claim. So it looks doubtful. But what is the chapter and verse to refute the claim?

eskbanker

dunstonh wrote: »

MSE is wrong. The Govt have confirmed that the dividend allowance and the annual allowance reduction are both going ahead.

Assuming that's taken from the same source/story that ColdIron quotes, that's saying that this government would intend to proceed after the election, i.e. deferring rather than the shelving/dropping that MSE has inferred, but this does of course assume it'll be the same government after the election! In other words, this government can't actually confirm that the changes will go ahead, although it's not an unreasonable assumption if the bookies are right....

eskbanker

user987 wrote: »

MSE provides no chapter and verse for its claim. So it looks doubtful. But what is the chapter and verse to refute the claim?

I'm no expert in parliamentary procedure and its documentation but as I understand it the bill to enact the measures announced in the budget, as originally introduced in March, was https://www.publications.parliament.uk/pa/bills/cbill/2016-2017/0156/cbill_2016-20170156_en_1.htm

Because of the lack of time to debate all of it properly before dissolution, it was proposed that a range of amendments be introduced to park some of the provisions, for now at least - these amendments included the removal of clause 5 (the dividend allowance reduction) among many others: http://www.parliament.uk/documents/commons-public-bill-office/2016-17/selection-of-amendments/committee/Finance-(No.-2)-Bill-170425.pdf

As I understand it, the bill was passed this afternoon on this basis, the full debate being recorded at https://hansard.parliament.uk/Commons/2017-04-25/debates/5594F8AC-8C9F-4BEE-80D6-5F4B9F1875AE/Finance(No2)Bill

The text quoted in ColdIron's post from treasury secretary Jane Ellison is verbatim from her opening remarks at 1:03pm.

So, it's a fact that these measures aren't in the bill as approved by the Commons today, but MSE's use of 'shelved' and 'dropped' rather than 'postponed' or 'deferred' is careless, given the government's intention to bring them forward again when there's adequate time to debate them, assuming of course that they're still in power! Since they weren't intended to take effect until next financial year, it would be perfectly feasible to pass the relevant legislation in plenty of time to avoid any delay in their introduction.

Hope that's enough chapters and verses to be going along with, I'm beginning to feel like bowlhead99 here

dunstonh

user987 wrote: »

MSE provides no chapter and verse for its claim. So it looks doubtful. But what is the chapter and verse to refute the claim?

The financial press had articles published saying different prior to MSE posting their article saying that it was a delay and not a shelving.
Here is one for example:
https://www.moneymarketing.co.uk/govt-looks-delay-mpaa-cut-dividend-tax-changes/

The key bit being delay and not shelved.

Rollinghome

AnotherJoe wrote: »

Perhaps all those people whining in the press about how their income would be reduced (because they carelessly hadn't put their investments in an ISA as "there was no need before") will take the time to do that now?

Not always mere carelessness and not always whining. I was talking to a retired nursing sister at lunchtime today who has spent most of her career working in underdeveloped countries both as a nurse and teaching. She now has almost nothing in ISAs because by living abroad the option wasn't available to her.

In a similar position are parents who had little surplus cash available for saving until fairly recently, perhaps benefiting from an inheritance, having struggled to bring up their children and perhaps put then through uni.

Like you I'm fortunate to have been able to use ISAs and PEPS before them but some others will have been less so.

As for the change in the dividend tax, it's possible they'll decide to ditch it as without a manifesto pledge income tax, NI and VAT could be raised instead.

EdSwippet

Rollinghome wrote: »

As for the change in the dividend tax, it's possible they'll decide to ditch it as without a manifesto pledge income tax, NI and VAT could be raised instead.

Or more likely, leave it in and also raise income tax, NI and VAT.

C_Mababejive

Sorry to open up an old debate but sums is not my strongest suit.

Now prior to the so called 5k allowance,what tax did someone pay on dividend income and was there a linkage to income tax bracket?

Essentially, did the move to the 5k "allowance" make people worse off or better off ?

Has there been a bit of smoke and mirrors going on?

ColdIron

Saves typing it all out
http://www.telegraph.co.uk/investing/shares/new-dividend-tax-how-it-works--and-how-to-avoid-it/

talexuser

Not everyone is a company director paying themselves in dividends. I put money in unwrapped ITs because max out the isa every year. This was designed to get dividends of just under 5k a year. Well now I'll have to pay 7.5% on some of them which is still better then paying 20% on paltry easy access building society rates (after the first 1k). But then the current philosophy seems to be everyone else should be paying tax rather then me.

Pincher

Previously, I was into transmuting capital gains into dividends.

Let us say, you can buy YYY at 98p a share, on 3rd January 2017.
Over time, it moves up to 100p on 1st March 2017.
On 2nd March 2017, it goes ex-dividend, and falls back to 98p, but you will receive 2p dividend on 1st April.

Convert Capital gains into dividend
======================

You artificially generate a loss by buying at 100p on 1st March, then sell at 98p on 2nd March. You will now get 2p dividend. The 2p loss can be used to offset other gains.

You would do this because you have lots of 0% dividend allowance left, but more than £11,100 gain in 2016/17.


Convert Dividend into capital gains
======================

With the sudden reduction of the dividend allowance, from £5,000 to £2,000, I am experimenting with going the other way. What if you are willing to sacrifice the dividend in favour of capital gains!
The idea is that you have used up all your 0% dividend allowance, but still have plenty of 0% CGT allowance left.

You need to have already bought the shares at whatever price beforehand. Now, you sell at 100p on 1st March, and then BUY IT BACK at 98p on 2nd March!! The 30 day rule means the buy and sell are MATCHED. You do not get the 2p dividend, but you do get the 2p difference between 100p and 98p as a profit, which is TAX FREE, because it's within the CGT allowance.



Obviously, the stamp duty and random share price movement can seriously mess up the tactic, but the price wobble can also act in your favour.


Lloyds went ex-dividend on 6th April 2017

So, Sell on 5th April for 65.56p,
Then Buy back on 6th April for 63.59p.
Well, plus 0.5% stamp duty, it costs 63.91p to buy back.

So, instead of the 2.2p dividend, on which you pay 7.5% tax, which means you actually get 2.035p

you get gains of 1.65p = 65.56 - 63.91


So, not worth doing, hmmmm?
UNLESS you are paying 32.5% dividend TAX, but 0% CGT!

2.2p becomes 1.485p after 32.5%
Versus 1.65p tax free.


It's probably more useful when you are borderline higher rate, which cuts your Personal Saving Allowance from £1,000 to £500, and some of your interest get taxed at 40%. If a manoeuvre brings you back down to basic rate, it could save hundreds in tax.