Changes to Dividend taxation
Discussion
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.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%?
EddieSteadyGo said:
TheHound said:
I was going to do a breakdown but just take a look at this link.
http://www.uktaxcalculators.co.uk/dividend-vs-sala...
Superb link!http://www.uktaxcalculators.co.uk/dividend-vs-sala...
This shows clearly that the change to taxation to small business owners is similar to the effect of a 2 or 3p rise in the basic rise in income tax!
Interestingly though, if you take £60,000 the increase is only £360.
Maybe it's time for a pay rise then.
Eric Mc said:
Company directors will just have to be a bit cleverer in defining what their withdrawals from their own companies relate to.
Indeed.If over age 55 there is scope to pay to a pension scheme and draw that immediately, 25% would be tax free. The limit is £40,000 for the first tax year but £10,000 therafter.
Okrib said:
Thanks to these tax changes, she will now lose over 50% of her personal allowance and face a huge tax rise.
What?She hasn't lost her personal allowance as it couldn't be used against Dividends anyway.
I agree there is an increased tax charge against the Dividends but to claim that she will now have to go out to work as a consequence is absurd.
Okrib said:
PurpleMoonlight said:
What?
She hasn't lost her personal allowance as it couldn't be used against Dividends anyway.
I agree there is an increased tax charge against the Dividends but to claim that she will now have to go out to work as a consequence is absurd.
Assuming a current net dividend of £40,000 and no PAYE salary, currently there is 0 tax to pay.She hasn't lost her personal allowance as it couldn't be used against Dividends anyway.
I agree there is an increased tax charge against the Dividends but to claim that she will now have to go out to work as a consequence is absurd.
UpTheIron said:
am... but how else would it work? If they were just flat rates, not bands:
Scenario 1: If already a higher rate tax payer, you will pay 32.5%... so makes no difference.
Yes there is, because currently you pay additional tax of 25% of the net dividend received whereas post 2016 you will pay 32.5% tax.Scenario 1: If already a higher rate tax payer, you will pay 32.5%... so makes no difference.
Fundamentally it's a tax increase of 7.5% on dividends received in excess of £5000.
Of course if you are a 40% tax payer via PAYE and you receive £4000 in dividends, you actually save £1000 in tax.
Okrib said:
The other question is whether this £5,000 allowance is added on to the personal allowance for people who only receive dividend income.
If someone receives a dividend of £40,000 and no additional income, which of the following scenarios will it be?
1: Personal allowance £11,000, Dividend allowance £5000. Total taxable = £24000 @ 7.5% = £1800 tax payable
2: No personal allowance as no PAYE. Dividend allowance £5000. Total taxable = £34000. £31785 @ 7.5% = £2383.88, £2215 @ 32.5% = £729.88 = £3103.76 total tax payable.
It has never been possible to offset the personal allowance against dividends, and it still isn't.If someone receives a dividend of £40,000 and no additional income, which of the following scenarios will it be?
1: Personal allowance £11,000, Dividend allowance £5000. Total taxable = £24000 @ 7.5% = £1800 tax payable
2: No personal allowance as no PAYE. Dividend allowance £5000. Total taxable = £34000. £31785 @ 7.5% = £2383.88, £2215 @ 32.5% = £729.88 = £3103.76 total tax payable.
Okrib said:
So at what level does the higher rate kick in?
Previously when she has done her tax return (dividend income only) it has been at the same point as everyone else (£42765 or whatever it is).
Is it now going to be lower? By the sounds of it surely it must be? Because if there's no personal allowance then after £31785 it must go to higher rate.
So anyone paid by dividend with no salary would effectively be losing the equivalent of the personal allowance.
Ah, sorry my confusion. I was thinking of reclaiming the tax credit against the personal allowance which you can't.Previously when she has done her tax return (dividend income only) it has been at the same point as everyone else (£42765 or whatever it is).
Is it now going to be lower? By the sounds of it surely it must be? Because if there's no personal allowance then after £31785 it must go to higher rate.
So anyone paid by dividend with no salary would effectively be losing the equivalent of the personal allowance.
The accounting website intimates the same basis will still apply, so you will be able to have £16,000 of dividends for 2016/17 before the 7.5% tax kicks in, and assuming the personal allowance isn't used anywhere else.
But this website doesn't and calculates the 7.5% tax charge against all dividends in excess of £5000 only.
http://www.uktaxcalculators.co.uk/dividend-vs-sala...
Guess we might have to wait for further assessment of the new requirements.
Edited by PurpleMoonlight on Friday 10th July 15:31
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