Changes to Dividend taxation

Changes to Dividend taxation

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Discussion

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Wednesday 8th July 2015
quotequote all
This was just announced in the Budget.

I don't understand the implications yet but thought I would start this thread as many of us take minimum PAYE and maximum Dividends, and is likely to cost us more.

Further clarification by anyone finding out would be welcome please.

worsy

5,776 posts

174 months

Wednesday 8th July 2015
quotequote all
I hope I misheard him say an increase in tax of 7.5%, I assume that was the lower rate he mentioned.

Eric Mc

121,779 posts

264 months

Wednesday 8th July 2015
quotequote all
It will take a while for the full "simplified" system is divulged in detail.

I like the way he has classified the replacing of the current Nil Tax and 32.5% tax on dividends with THREE separate rates of tax plus a special Tax Free Dividend Income Band as being a "simplification".

worsy

5,776 posts

174 months

Wednesday 8th July 2015
quotequote all
Eric Mc said:
It will take a while for the full "simplified" system is divulged in detail.

I like the way he has classified the replacing of the current Nil Tax and 32.5% tax on dividends with THREE separate rates of tax plus a special Tax Free Dividend Income Band as being a "simplification".
So I assume something on the lines of:

(Basic Rate band -5000 - personal allowances ) * 7.5%

Very roughly

32000 - 5000 - 10000 = 17000 *7.5% = Extra 1275

Eric Mc

121,779 posts

264 months

Wednesday 8th July 2015
quotequote all
Much simpler - innit smile

worsy

5,776 posts

174 months

Wednesday 8th July 2015
quotequote all
And unavoidable.

What with marginal rate at 50k for child benefit and PA reduction at 100k, all gets rather complex.

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Wednesday 8th July 2015
quotequote all
He seemed to say £5000 without further tax liability regardless of marginal tax rate, the balance at in effect 40%/45% tax.

So if after salary plus £5000 you don't use all your basic rate tax band you loose it and end up paying additional tax on a large slice of Dividends.

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Wednesday 8th July 2015
quotequote all
Seems it's this:

5K tax free then 7.5%,32.5%,38.1%

Will the corporation tax paid still be deemed to cover the 7.5%? Presumably not.

Edited by PurpleMoonlight on Wednesday 8th July 14:01

SGirl

7,918 posts

260 months

Wednesday 8th July 2015
quotequote all
This is why I have accountants. It makes my head hurt just thinking about all the changes.

This reduction in corporation tax - is it for all companies this time, or just the big ones?

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Wednesday 8th July 2015
quotequote all
SGirl said:
This reduction in corporation tax - is it for all companies this time, or just the big ones?
All by the sounds of it.

The increase to the employment allowance to £3000 from 2016 is nice too.

SGirl

7,918 posts

260 months

Wednesday 8th July 2015
quotequote all
PurpleMoonlight said:
All by the sounds of it.

The increase to the employment allowance to £3000 from 2016 is nice too.
Good. Thanks! I'm not getting too excited though, Chancellors always give with one hand and take away with the other. wink

worsy

5,776 posts

174 months

Wednesday 8th July 2015
quotequote all
PurpleMoonlight said:
Seems it's this:

5K tax free then 7.5%,32.5%,38.1%

Will the corporation tax paid still be deemed to cover the 7.5%? Presumably not.

Edited by PurpleMoonlight on Wednesday 8th July 14:01
Most people would receive 10k as salary then the rest as Divis. May be as you say, but easy to get round that to claim your full pa.

essayer

9,011 posts

193 months

Wednesday 8th July 2015
quotequote all
PurpleMoonlight said:
All by the sounds of it.

The increase to the employment allowance to £3000 from 2016 is nice too.
...unless the director is the sole employee, in which case ESA can't be claimed...

bobbylondonuk

2,197 posts

189 months

Wednesday 8th July 2015
quotequote all
I think it works like this


profit in Ltd co.
20/19/18% corp tax

11k income tax free
5k dividend tax free

20/40/45% income tax
7.5/32.5/38.1% dividend tax

rswift

1,179 posts

174 months

Wednesday 8th July 2015
quotequote all
essayer said:
PurpleMoonlight said:
All by the sounds of it.

The increase to the employment allowance to £3000 from 2016 is nice too.
...unless the director is the sole employee, in which case ESA can't be claimed...
Can anyone explain the LTD Company/Sole employee implications, as this is exactly the case I'm in.

surveyor

17,768 posts

183 months

Wednesday 8th July 2015
quotequote all
When does the change kick in, anyone know?

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Wednesday 8th July 2015
quotequote all
bobbylondonuk said:
I think it works like this


profit in Ltd co.
20/19/18% corp tax

11k income tax free
5k dividend tax free

20/40/45% income tax
7.5/32.5/38.1% dividend tax
But will the CT paid by the Ltd be deemed to offset any of the Dividend tax as it does now?

Eric Mc

121,779 posts

264 months

Wednesday 8th July 2015
quotequote all
Kind of. The company will pay 18% Corporation tax on its profit BEFORE the dividend has been deducted.

The dividend will be taxed in its own "special" way.

In truth, since the introduction of the 10% tax credit system in 1999, the way the dividend was taxed was never seen as being partly covered by Corporation Tax paid by the company issuing the dividend.

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Wednesday 8th July 2015
quotequote all
Then the result is I believe a 7.5% tax increase on the individual on all net dividends above £5000.

Wow .......

If are a basic rate tax payer and take £30,000 net Dividend you will pay an additional £1875 in tax.

Well I'm not a happy bunny.


SGirl

7,918 posts

260 months

Wednesday 8th July 2015
quotequote all
I think that's about the size of it. Good old government, supporting small businesses as always! rolleyes