Discussion
This is a slightly edited version of an email I’ve just sent to my accountant. Asking the same question on here to get as much advice as possible.
—————
Hi all,
Following a recent thread I’ve decided to withdraw a lot of the money from my LTD company as we are looking to pay our mortgages off. There’s about £250k sat in there at the min.
I want to withdraw an amount to take both me and my wife as close to £100k total income for the 2018-19 tax year. And will also do the same next tax year. It’s important that neither of us go over the £100k limit as I believe that doing so would reduce our personal allowance, child tax credits and (potentially) pensions allowance?
My question is, how do I know how much each of us can draw in dividends before 5th April?
My wife’s will be a bit easier than mine - is it a case of looking at her final pay slip in March, adding up total earned, minus pension contributions, add on any dividends already taken? Is there anything else I need to factor in?
Mine is more complex as I’ve got earnings from a BTL plus a couple of other small things amounting to just a few thousand pound per year.
Any advice would be much appreciated.
Thanks,
Rob
—————
Hi all,
Following a recent thread I’ve decided to withdraw a lot of the money from my LTD company as we are looking to pay our mortgages off. There’s about £250k sat in there at the min.
I want to withdraw an amount to take both me and my wife as close to £100k total income for the 2018-19 tax year. And will also do the same next tax year. It’s important that neither of us go over the £100k limit as I believe that doing so would reduce our personal allowance, child tax credits and (potentially) pensions allowance?
My question is, how do I know how much each of us can draw in dividends before 5th April?
My wife’s will be a bit easier than mine - is it a case of looking at her final pay slip in March, adding up total earned, minus pension contributions, add on any dividends already taken? Is there anything else I need to factor in?
Mine is more complex as I’ve got earnings from a BTL plus a couple of other small things amounting to just a few thousand pound per year.
Any advice would be much appreciated.
Thanks,
Rob
JapanRed said:
as we are looking to pay our mortgages off.
The very first question I would have is "why". What is your overriding objective (is it really to pay the mortgage off, or is it something else such as having the option to retire as early as possible) and how do you feel this best helps you achieve it. Hi both,
Not sure whether it’s tax credits or benefits. We have to pay them all back in my tax return I believe so probably doesn’t matter.
Derek - please see my previous thread from January about taking dividends to pay off mortgage. It’s all covered in there. Any comments on “why are you doing this” please use the other thread.
I literally want this thread to be about my original question.
Cheers both.
Not sure whether it’s tax credits or benefits. We have to pay them all back in my tax return I believe so probably doesn’t matter.
Derek - please see my previous thread from January about taking dividends to pay off mortgage. It’s all covered in there. Any comments on “why are you doing this” please use the other thread.
I literally want this thread to be about my original question.
Cheers both.
rockin said:
JapanRed said:
I literally want this thread to be about my original question.
I don't think you ever came back with what your accountant said from your other thread....JapanRed said:
I’ll ring my accountant next week.
??Crux of the matter is that it was a no go as it would significantly limit our options in the future.
vindaloo79 said:
Would it suit you and could you qualify for claiming Entrepreneurs Relief on the Job Lot? (whilst closing down the ltd).
I know directors who have done this with amounts I believe are nearer £50k as sole director....
Great idea and one that I’ve considered however business is currently good and I’m only 34 so seems daft to close it down as I’d probably lose more than I could potentially gain in the future. I know directors who have done this with amounts I believe are nearer £50k as sole director....
Isn't additional income tax threshold at £150k? And I thought child credits are pretty much worthless as you have to pay it all back anyways if your income is high?
I didn't think anything drastic happens when your income goes from £99k to £101k if your an employee? Are things quite different if your self employeed?
I didn't think anything drastic happens when your income goes from £99k to £101k if your an employee? Are things quite different if your self employeed?
Edited by gangzoom on Sunday 3rd February 06:13
I'm not clear when you refer to "£100k total" if you want both you and your wife to have £100k income each or if you are aiming for £50k each?
On your income you won't be getting child credits. You may receive child support though. The taper for that starts if the highest earner in your family reaches £50k income and is gone by £60k.
Your BTL could cause an issue in this regard, as the government classifies the total BTL rent as being "income" when calculating your tax threshold. (This is despite them knowing that you will have a number of allowable expenses to deduct before you calculate your profit from the BTL).
And as others have said, your pension allowance only starts to taper at £150k (and taper only reduces to £10k once you reach £210k)
So I would make the question to your accountant a little less specific. I'd ask them to calculate the tax implications based on 2 or 3 income scenarios
I'd also work out a forecast of the income your company is likely to generate each year.
And you will know your mortgage costs and the potential savings which could be achieved by repaying a portion of the principle sum early.
If you put this together in a spreadsheet by year, you will be able to make an informed choice of the optimal amount you should draw down as dividends.
On your income you won't be getting child credits. You may receive child support though. The taper for that starts if the highest earner in your family reaches £50k income and is gone by £60k.
Your BTL could cause an issue in this regard, as the government classifies the total BTL rent as being "income" when calculating your tax threshold. (This is despite them knowing that you will have a number of allowable expenses to deduct before you calculate your profit from the BTL).
And as others have said, your pension allowance only starts to taper at £150k (and taper only reduces to £10k once you reach £210k)
So I would make the question to your accountant a little less specific. I'd ask them to calculate the tax implications based on 2 or 3 income scenarios
I'd also work out a forecast of the income your company is likely to generate each year.
And you will know your mortgage costs and the potential savings which could be achieved by repaying a portion of the principle sum early.
If you put this together in a spreadsheet by year, you will be able to make an informed choice of the optimal amount you should draw down as dividends.
gangzoom said:
Isn't additional income tax threshold at £150k? And I thought child credits are pretty much worthless as you have to pay it all back anyways if your income is high?
I didn't think anything drastic happens when your income goes from £99k to £101k if your an employee? Are things quite different if your self employeed?
I assume he means the loss of personal allowance, and, god forbid, someone might have to pay tax.I didn't think anything drastic happens when your income goes from £99k to £101k if your an employee? Are things quite different if your self employeed?
Edited by gangzoom on Sunday 3rd February 06:13
https://www.kirkrice.co.uk/blog/personal-allowance...
EddieSteadyGo said:
I'm not clear when you refer to "£100k total" if you want both you and your wife to have £100k income each or if you are aiming for £50k each?
On your income you won't be getting child credits. You may receive child support though. The taper for that starts if the highest earner in your family reaches £50k income and is gone by £60k.
Your BTL could cause an issue in this regard, as the government classifies the total BTL rent as being "income" when calculating your tax threshold. (This is despite them knowing that you will have a number of allowable expenses to deduct before you calculate your profit from the BTL).
And as others have said, your pension allowance only starts to taper at £150k (and taper only reduces to £10k once you reach £210k)
So I would make the question to your accountant a little less specific. I'd ask them to calculate the tax implications based on 2 or 3 income scenarios
I'd also work out a forecast of the income your company is likely to generate each year.
And you will know your mortgage costs and the potential savings which could be achieved by repaying a portion of the principle sum early.
If you put this together in a spreadsheet by year, you will be able to make an informed choice of the optimal amount you should draw down as dividends.
Many thanks for the post, it’s given me food for thought and very helpful. On your income you won't be getting child credits. You may receive child support though. The taper for that starts if the highest earner in your family reaches £50k income and is gone by £60k.
Your BTL could cause an issue in this regard, as the government classifies the total BTL rent as being "income" when calculating your tax threshold. (This is despite them knowing that you will have a number of allowable expenses to deduct before you calculate your profit from the BTL).
And as others have said, your pension allowance only starts to taper at £150k (and taper only reduces to £10k once you reach £210k)
So I would make the question to your accountant a little less specific. I'd ask them to calculate the tax implications based on 2 or 3 income scenarios
I'd also work out a forecast of the income your company is likely to generate each year.
And you will know your mortgage costs and the potential savings which could be achieved by repaying a portion of the principle sum early.
If you put this together in a spreadsheet by year, you will be able to make an informed choice of the optimal amount you should draw down as dividends.
Sorry, I meant £100k each.
Yes we get child support but have to pay it back - just get it to keep NI contributions going.
Thanks again.
gangzoom said:
Isn't additional income tax threshold at £150k? And I thought child credits are pretty much worthless as you have to pay it all back anyways if your income is high?
I didn't think anything drastic happens when your income goes from £99k to £101k if your an employee? Are things quite different if your self employeed?
Yes we have to pay the child credits back. I didn't think anything drastic happens when your income goes from £99k to £101k if your an employee? Are things quite different if your self employeed?
Edited by gangzoom on Sunday 3rd February 06:13
Personal allowance reduces over £100k.
PurpleMoonlight said:
Derek Chevalier said:
What makes you say that?
60% tax.If tax was a flat rate I'd be looking to try and make more money but no way I want all that hassle again. I genuinely feel for those on £100k+ (Doctors, Surgeons, job creating entrepreneurs - all with unenviable hours and pressure) - they're being absolutely milked but aren't rich enough to avoid it. Made me think this is the real glass ceiling for normal people - very limiting.
PurpleMoonlight said:
Derek Chevalier said:
What makes you say that?
60% tax.fakenews said:
PurpleMoonlight said:
Derek Chevalier said:
What makes you say that?
60% tax.If tax was a flat rate I'd be looking to try and make more money but no way I want all that hassle again. I genuinely feel for those on £100k+ (Doctors, Surgeons, job creating entrepreneurs - all with unenviable hours and pressure) - they're being absolutely milked but aren't rich enough to avoid it. Made me think this is the real glass ceiling for normal people - very limiting.
red_slr said:
I think a lot of jobs you mention boost income exponentially over £100k to account for tax and other restrictions. 20 years ago most PAYE "high earners" would have been on £70-£100k. Today I would say its more like £300k.
Not sure HMRC's figures support what you're saying.https://www.gov.uk/government/statistics/percentil...
Depends what you mean by high-earners but 99th percentile started at £96,400 in 1999/00. In 2015/16, that had increased to £170,000 (so perhaps a little more in 2018/19, although I think high-earners have generally seen pretty flat pay over recent years).
I do think the 60% tax band is too high - it's a real disincentive once you get to that sort of level and makes people focus on how to avoid it (including reducing working hours so reducing income overall).
At £100k (each) you don't have to worry about losing your Annual Allowance for pensions (tapering starts at £150k). Your child benefit is long gone. But definitely sensible thinking about keeping income to no more than £100k - better to earn £100k two years in a row than more than £100k in one year and falling back below £100k the following year.
Gassing Station | Finance | Top of Page | What's New | My Stuff