Government may raise tax amount on dividends income

[Darka]

From the BBC

Government may raise tax amount on dividends income

"It is understood the government may also increase the amount of tax that is paid on income from share dividends to help cover the cost of today’s package for health and social care.

Currently tax on dividend payments is lower than tax on regular income for example, basic rate payers pay just 7.5% of they receive cash from shares."

One would assume this only only applies to non-sheltered dividends.

[Alaric]

Currently tax on dividend payments is lower than tax on regular income for example, basic rate payers pay just 7.5% of they receive cash from shares.

Presumably they are conveniently forgetting that dividends are paid from profits that have at least notionally suffered Corporation Tax already.

Presuming the status of ISAs, SIPPs and the £ 2000 limit are unchanged that's another attack on one person service companies. Are there enough holders of shares who would be subject to additional tax to make Companies change their behaviour by reducing amounts distributed as dividends?

[JohnB]

I think that the dividend allowance was always going to go eventually, and the dividend rate match basic rate tax. I just hope it happens slowly. Of course government knows about corporation tax, just as they know about employer NI.

[gryffron]

Presumably they are conveniently forgetting that dividends are paid from profits that have at least notionally suffered Corporation Tax already.

No they're not forgetting that at all. But remember Corporation tax has reduced in recent years. So in effect dividends have had a tax cut.

Corporation tax 18%.
Dividend tax 7.5% (of 82%) = 6.1%. So a total of 24%.

Income: employers NI @ 13.8% employees NI @ 12%. Income tax @ 25%. >50%. So tax on dividends is HALF the tax on earned income. I think there's a lot of room for an increase there.

[edit] Correction: because employers NI is paid above your wages, rather than a deduction, the calculation should be (13.8+25+12)/(100+13.8) = 45% - Still much higher.

Gryff

[pje16]

He has announced a 1.25% increase in National Insurance from April 2022 to address the funding crisis in the health and social care system

[mike]

Also a 1.25% rise in dividend tax. So from 7.5% to 8.75%. No details regarding the £2,000 limit at present.

[csearle]

Moderator Message:
Just a gentle reminder that the focus of this thread should remain on the practical aspects of a tax on dividends to HYPs rather than the rights or wrongs of such a tax. If you wish to discuss these please feel free to do so on a tailor-made area of this site. Thanks - Chris

[dealtn]

Moderator Message:
Just a gentle reminder that the focus of this thread should remain on the practical aspects of a tax on dividends to HYPs rather than the rights or wrongs of such a tax. If you wish to discuss these please feel free to do so on a tailor-made area of this site. Thanks - Chris

Or might I suggest

viewforum.php?f=62

for those more concerned with the economics, not the politics.

[bluedonkey]

From the Guardian:

"Tax on share dividends will also be increased by 1.25 percentage points, in a move expected to raise £600m."

[scrumpyjack]

All dividend tax rates rising by 1.25%

Boris Johnson told MPs: "While Scotland, Wales and Northern Ireland have their own system, we will direct money raised through the levy to their health and social care services.

"So, in total, Scotland, Wales, and Northern Ireland will benefit from an extra £2.2bn a year, and as this is about 15% more than they would contribute through the levy, it will create a union dividend of £300m."

or increased "Union Overhead" for England?

[idpickering]

The answer is simple imho. Take advantage of the tax free ways of investing as much as you can.

My HYP has been tucked up in my ISA since my HYP’s birth, many years ago.

Ian.

[monabri]

I'm just glad that he didn't raise dividend tax to be in line with the 20% basic tax level. I had that fear in the back of my mind!

[scrumpyjack]

Presumably they are conveniently forgetting that dividends are paid from profits that have at least notionally suffered Corporation Tax already.

No they're not forgetting that at all. But remember Corporation tax has reduced in recent years. So in effect dividends have had a tax cut.

Corporation tax 18%.
Dividend tax 7.5% (of 82%) = 6.1%. So a total of 24%.

Income: employers NI @ 13.8% employees NI @ 12%. Income tax @ 25%. >50%. So tax on dividends is HALF the tax on earned income. I think there's a lot of room for an increase there.

[edit] Correction: because employers NI is paid above your wages, rather than a deduction, the calculation should be (13.8+25+12)/(100+13.8) = 45% - Still much higher.

Gryff

They have already announced that the rate of Corporation tax is going up to 25% from the current 19%, so that is a very substantial increase.

Also it seems the top 14% of taxpayers will be paying 50% of the increased tax, assuming they don't emigrate

[1nvest]

Will dividends in ISA/SIPP continue to remain exempt?

In past budgets I have heard references specifically stating that 'continuing to remain' type language with respect to ISA dividends suggesting that the concept of ISA's excluding both capital gains and dividend taxation changes were at least pondered. Given rising dividend taxation policies and cost of Covid tax grab I wouldn't be shocked if ISA dividend tax exemptions were changed to not being exempted.

[pje16]

If they abolished ISAs there would be a riot

[1nvest]

If they abolished ISAs there would be a riot

I suspect it would only be ISA dividends that would be taxed. If it came to fully taxing ISA's I guess it would be via inclusion of the ISA value within a wealth-tax system.

[scrumpyjack]

If they abolished ISAs there would be a riot

I suspect it would only be ISA dividends that would be taxed. If it came to fully taxing ISA's I guess it would be via inclusion of the ISA value within a wealth-tax system.

It already is subject to a wealth tax and it's called IHT. One of the reasons for keeping ISAs is to encourage people to hang on to their wealth so it can then be hammered for a 40% tax on their death, rather than have them give it to the next generation before death. It has worked with my wife and I!

The dividend tax increase is a sensible tactic to make the NI increase more acceptable. Numerous surveys have shown that NI is one of the most politically acceptable taxes for most people. It is now very high but still lower than in many western european countries.

[scrumpyjack]

Out tax to GDP ratio is very near the OECD average (2019 33.0% vs 33.8%)

[csearle]

Moderator Message:
Please expect posts to be summarily deleted if they stray from the practical HYP-consequences of the latest announcement. Other places exist for such contributions. Chris

Moderator Message:
Ditto. I've deleted several. Please stick to the PRACTICAL aspects of this. Comment on the politics elsewhere. --MDW1954

[Dod101]

If they abolished ISAs there would be a riot

I suspect it would only be ISA dividends that would be taxed. If it came to fully taxing ISA's I guess it would be via inclusion of the ISA value within a wealth-tax system.

It already is subject to a wealth tax and it's called IHT. One of the reasons for keeping ISAs is to encourage people to hang on to their wealth so it can then be hammered for a 40% tax on their death, rather than have them give it to the next generation before death. It has worked with my wife and I!

The dividend tax increase is a sensible tactic to make the NI increase more acceptable. Numerous surveys have shown that NI is one of the most politically acceptable taxes for most people. It is now very high but still lower than in many western european countries.

It has worked with me as well, except that with the various exemptions, IHT will be well under 40%. Even the marginal rate can reduce to 36% if you give enough to charity.

Dod