Changes to Dividend taxation
Discussion
PurpleMoonlight said:
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.
Not so. It is an increase of 7.5% on all dividends taxed at Basic Rate. Dividends currently taxed at higher rate and above are unchanged.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.
PurpleMoonlight said:
It's going to affect business owners mainly who take significant Dividends as opposed to salary.
Well that's exactly who the change is targeted at. They are not shelling out loads in NI contributions so the lost revenue has to be recovered from elsewhere. It's still far more tax efficient for the company to pay out dividends rather than salary and it is for the individual as well.First time post, and might be full of errors...
This topic is very relevant to my family and I, as my wife looks after our young kids and gets dividend income from a family company.
Using an example of a gross dividend income of £50,000, and assuming no PAYE / salary, this is the current situation:
Gross = £50,000
Net = £45,000
Personal allowance = £10,600
Basic rate = £31,785 = £0 tax payable
Higher rate = £7,615 = £1,713 tax payable at additional 22.5% (effectively 32.5%).
Total tax = £6,713
New scenario:
Gross = £50,000
Allowance = £5,000
Basic rate = £37,475 = £2,810 tax payable at 7.5%
Higher rare = £7,615 = £2,474 tax payable at 32.5%
Total tax = £5,284
Surely that can't be right - I can't believe they would give a tax cut to people on that sort of income.
This topic is very relevant to my family and I, as my wife looks after our young kids and gets dividend income from a family company.
Using an example of a gross dividend income of £50,000, and assuming no PAYE / salary, this is the current situation:
Gross = £50,000
Net = £45,000
Personal allowance = £10,600
Basic rate = £31,785 = £0 tax payable
Higher rate = £7,615 = £1,713 tax payable at additional 22.5% (effectively 32.5%).
Total tax = £6,713
New scenario:
Gross = £50,000
Allowance = £5,000
Basic rate = £37,475 = £2,810 tax payable at 7.5%
Higher rare = £7,615 = £2,474 tax payable at 32.5%
Total tax = £5,284
Surely that can't be right - I can't believe they would give a tax cut to people on that sort of income.
plasticpig said:
Well that's exactly who the change is targeted at. They are not shelling out loads in NI contributions so the lost revenue has to be recovered from elsewhere. It's still far more tax efficient for the company to pay out dividends rather than salary and it is for the individual as well.
It is, but if you want people to take the often financial risks and create jobs for others then they need to see a reward for that.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".
It will work as followsI 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".
Salary - 11k - £0 tax
First £5k Dividend - £0 tax
Dividend £5k-£32k - up to £27k taxed at 7.5 % - £2,025 Tax (max)
Dividends £32k -£150k - up to £118k taxed at 32.5%
Dividends over £150k - taxed at 38.1%
there will be no such thing as a gross and net dividend under this new system, these were created by the tax credit, which will be abolished.
Edited by TheHound on Wednesday 8th July 17:12
TheHound said:
It will work as follows
Salary - 11k - £0 tax
First £5k Dividend - £0 tax
Dividend £5k-£32k - up to £27k taxed at 7.5 % - £2,025 Tax (max)
Dividends £32k -£150k - up to £118k taxed at 32.5%
Dividends over £150k - taxed at 38.1%
Is that correct?Salary - 11k - £0 tax
First £5k Dividend - £0 tax
Dividend £5k-£32k - up to £27k taxed at 7.5 % - £2,025 Tax (max)
Dividends £32k -£150k - up to £118k taxed at 32.5%
Dividends over £150k - taxed at 38.1%
Edited by TheHound on Wednesday 8th July 17:12
If there is a £5,000 tax free dividend allowance, why isn't the next £32,000 at 7.5%?
TheHound said:
Eric Mc said:
As always with "simplifications" to tax - all that has happened is that one reasonably complex concept has been replaced by another.
I'm not happy about this but it isn't that complicated to understand. Eric Mc said:
Nor is it complicated for me - but an awful lot of people can't cope with tax and the way it is administered. That's why they hire accountants.
I agree with your overall point and the need for accountants, however I actually think this way of calculating tax on dividends is actually simpler than the current system. The one that is going to confuse a lot of people is the mortgage interest relief changes. I think I understand it but it does make it difficult.
I think the new dividend treatment will get complicated when the tax calculation on the dividend income is incorporated into the overall computation which will more than likely also include salary income, other investment income and perhaps all the other types of income that often have their own unique and separate sets of rules and treatments.
Okrib said:
First time post, and might be full of errors...
This topic is very relevant to my family and I, as my wife looks after our young kids and gets dividend income from a family company.
Using an example of a gross dividend income of £50,000, and assuming no PAYE / salary, this is the current situation:
Gross = £50,000
Net = £45,000
Personal allowance = £10,600
Basic rate = £31,785 = £0 tax payable
Higher rate = £7,615 = £1,713 tax payable at additional 22.5% (effectively 32.5%).
Total tax = £6,713
New scenario:
Gross = £50,000
Allowance = £5,000
Basic rate = £37,475 = £2,810 tax payable at 7.5%
Higher rare = £7,615 = £2,474 tax payable at 32.5%
Total tax = £5,284
Surely that can't be right - I can't believe they would give a tax cut to people on that sort of income.
I don't think your maths is right there. In your first example total tax is £1,713, the second is £5,284. So an effective tax increase of £3,571. It will be less (as you haven't included personal allowance in second example which you'll still be able to do). In effect though I think on a salary of £11k and dividend income of circa of £33k, you'll be some £1,800 worse off. This topic is very relevant to my family and I, as my wife looks after our young kids and gets dividend income from a family company.
Using an example of a gross dividend income of £50,000, and assuming no PAYE / salary, this is the current situation:
Gross = £50,000
Net = £45,000
Personal allowance = £10,600
Basic rate = £31,785 = £0 tax payable
Higher rate = £7,615 = £1,713 tax payable at additional 22.5% (effectively 32.5%).
Total tax = £6,713
New scenario:
Gross = £50,000
Allowance = £5,000
Basic rate = £37,475 = £2,810 tax payable at 7.5%
Higher rare = £7,615 = £2,474 tax payable at 32.5%
Total tax = £5,284
Surely that can't be right - I can't believe they would give a tax cut to people on that sort of income.
deep joy
x5x3 said:
to summarise this as a non accountant then, last year I could take a £20K dividend with no tax to pay, after these rules (when do they start?) it is £5K.
Whether or not it is a simplification it certainly is pretty harsh.
Maybe this is the new IR35
And IR35 is still around anyway.Whether or not it is a simplification it certainly is pretty harsh.
Maybe this is the new IR35
Eric Mc said:
x5x3 said:
to summarise this as a non accountant then, last year I could take a £20K dividend with no tax to pay, after these rules (when do they start?) it is £5K.
Whether or not it is a simplification it certainly is pretty harsh.
Maybe this is the new IR35
And IR35 is still around anyway.Whether or not it is a simplification it certainly is pretty harsh.
Maybe this is the new IR35
Out of interest how do the entrepreneur rules work these days?
maybe the best option is to not take anything above the 16K and then close the company after a few years
James44 said:
I don't think your maths is right there. In your first example total tax is £1,713, the second is £5,284. So an effective tax increase of £3,571. It will be less (as you haven't included personal allowance in second example which you'll still be able to do). In effect though I think on a salary of £11k and dividend income of circa of £33k, you'll be some £1,800 worse off.
deep joy
Will you be able to add the dividend allowance to the personal allowance? I don't think so.deep joy
Thus for people with solely dividend income it's going to be a huge tax hit.
We aren't employees / directors of the company, just shareholders. Effectively she will be losing over 50% of her current personal allowance.
PurpleMoonlight said:
worsy said:
Not so. It is an increase of 7.5% on all dividends taxed at Basic Rate. Dividends currently taxed at higher rate and above are unchanged.
Don't think so.Currently dividends taxed at equivalent 40% income tax equates to 25% of the net dividend, the new rate is 32.5%.
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