"Dividend allowance cut could clobber ..."

[PinkDalek]

There's a short article here https://www.telegraph.co.uk/business/20 ... bber-smes/ which includes:

The Federation of Small Businesses (FSB) is concerned the Treasury may slash the tax-free dividend allowance for directors and investors once again … .

I don't know if the date of the Autumn 2018 Budget has been announced but last year it was on 22 November 2017.

[absolutezero]

The simple answer is, of course, to use an ISA to shield your publicly listed companies from the tax.

There's one big problem here:
I don't trust the nominee structure or the supposed safeguards that keep your investments safe within a nominee system.
Too much can go wrong. Fraud. Lending out of your shares. Insolvent brokers. The recent thing with Beaufort Securities should have opened people's eyes to nominee held shares.
Your name should be on the share register and in thsi day and age there is no reason why the personal CREST system couldn't be adapted to use in ISAs.
So until and unless that happens, I'm forced to pay the dividend tax.

Until ISAs use the personal CREST system I won't be using one.
If the cost of being able to sleep at night is having to pay tax, then so be it.

I did write to my MP at the time of this cut in the allowance and explained that private company directors who use dividends to avoid income tax and investors in publicly listed companies should be treated differently but she seemed too thick to understand what I was on about.

[TedSwippet]

There's a short article ... which includes: The Federation of Small Businesses (FSB) is concerned the Treasury may slash the tax-free dividend allowance for directors and investors once again …

Sounds about right to me.

It's now a standard government tactic. Move tax rules around but introduce a new allowance, exemption, or similar somewhere to dilute the worst effect. Wait a year or two, and then re-frame the allowance or exemption as a 'loophole' that has to be eliminated. The end effect is a tax rise, but rather than being honest and overt it is instead accomplished in two stages both of which can be painted as 'simplification'.

[Alaric]

The Federation of Small Businesses (FSB) is concerned the Treasury may slash the tax-free dividend allowance for directors and investors once again … .

There is a problem for HMRC in that the lower they set the limit, the more "small" investors will get dragged into the net of having a small additional amount of tax to pay. It's not just direct holders of shares affected but also all those who have unsheltered OEICs or Unit Trusts.

I wouldn't not shelter holdings in ISAs because of the minimal risks of holding shares in nominee accounts.

[BBLSP1]

It seems odd to abolish the 2K allowance as this may well sweep a lot of 'accidental' shareholders into the net.

I was expecting instead the basic rate on dividends, currently 7.5%, to creep upwards towards the income rate of 20% over the years (and the higher bracket rates ditto).

For various reasons I have a large un-sheltered portfolio which would take many years to shelter. However, I am budgeting on a 2K allowance and 20% tax. Keeping the 7.5% tax rate and abolishing the allowance (provided I can still use my personal allowance against dividends) is OK with me if 'something must be done'.

[PinkDalek]

The simple answer is, of course, to use an ISA to shield your publicly listed companies from the tax.

There's one big problem here: …

There are other issues. I'm unable to shelter all my quoted securities in an ISA but I'm not worried about Beaufort, Pacific Continental et al. I also receive dividends from private limited companies, some of which are minority holdings, that aren't allowed to be held in an ISA.

I did write to my MP at the time of this cut in the allowance and explained that private company directors who use dividends to avoid income tax and investors in publicly listed companies should be treated differently but she seemed too thick to understand what I was on about.

I doubt you are the only one who wishes to attack private company shareholders.

[tjh290633]

The simple answer is, of course, to use an ISA to shield your publicly listed companies from the tax.

There's one big problem here:
I don't trust the nominee structure or the supposed safeguards that keep your investments safe within a nominee system.
Too much can go wrong. Fraud. Lending out of your shares. Insolvent brokers. The recent thing with Beaufort Securities should have opened people's eyes to nominee held shares.
Your name should be on the share register and in thsi day and age there is no reason why the personal CREST system couldn't be adapted to use in ISAs.
So until and unless that happens, I'm forced to pay the dividend tax.

Until ISAs use the personal CREST system I won't be using one.
If the cost of being able to sleep at night is having to pay tax, then so be it.

I did write to my MP at the time of this cut in the allowance and explained that private company directors who use dividends to avoid income tax and investors in publicly listed companies should be treated differently but she seemed too thick to understand what I was on about.

It may be worth pointing out that City Equities used sponsored personal Crest accounts for their clients' share holdings.

TJH

[Lootman]

I was expecting instead the basic rate on dividends, currently 7.5%, to creep upwards towards the income rate of 20% over the years (and the higher bracket rates ditto).

Yep, me too, a snide creeping theft rather than a blatant one

In some ways I'd almost prefer Corbyn because at least then I'd know the government is out to ruin me, and could take steps to protect myself.

But when even the Tories turn on their own and punish BTL landlords, investors and other wealth creators, it is death by a thousand cuts.

[Dod101]

I was expecting instead the basic rate on dividends, currently 7.5%, to creep upwards towards the income rate of 20% over the years (and the higher bracket rates ditto).

Yep, me too, a snide creeping theft rather than a blatant one

In some ways I'd almost prefer Corbyn because at least then I'd know the government is out to ruin me, and could take steps to protect myself.

But when even the Tories turn on their own and punish BTL landlords, investors and other wealth creators, it is death by a thousand cuts.

I fear that Lootman is losing it. We will need to wait until the Autumn budget to see what they have in mind but currently I do not mind paying an extra £400 or so to protect my directly held investments.

Dod

[absolutezero]

It may be worth pointing out that City Equities used sponsored personal Crest accounts for their clients' share holdings.

TJH

I suspect those particular shareholders had no fuss in having their assets sorted out. I'll bet it was the poor nominee people that got faffed about.

I've done a fair bit of digging about on the security of personal CREST accounts.
The best I found was an article in the IC or in ShareSoc's magazine. Will see if I can find it.
Long and short of it was no system is foolproof but Euroclear's rules say that a broker can't fiddle about with your shares if you are named on the share register (unlike nominee where they can do what they like with them) unless Euroclear have authorisation from you.

The best system is certificated holdings but sadly not really much use in this day and age - even more so when the EU share directive comes into force about all shareholdings being held in electronic format. Even if we have left the EU by then (not convinced we will ever leave the EU but that's another story) I see no reason why our government would deviate from this.

EDIT:
The following is taken from the ShareSoc newsletter, June 2018
Mostly about brokers going into administration

Some doubts arose in my mind as to whether the latter solution [personal CREST] would actually provide the protection required.
Would an administrator be able to transfer the shares into their name, or stop the transfer of the account and hence the holdings to another broker?
Here are the answers provided by Killik & Co., which provide some reassurance:
In order for a participant to change Sponsor, CREST require:
• For those Participants that are already Sponsored, 3 letters as follows –
– One from the existing Sponsor stating they are happy for the Participant(s) to move away from them
on a set date.
– One from the Participant(s) requesting to move Sponsors on a set date.
– One from the new Sponsor stating they are happy to take over sponsorship of the Participant on a set date.
• However, our understanding is that, where the Sponsor is in administration, a letter is not required by the existing Sponsor. We believe it would be possible therefore, for the sponsored member to instruct another Sponsor to take on the sponsorship of the account. Note that CREST is not a custodian or a depository and the shares are actually held by the Sponsor, but in the name of the legal owner.
Regarding the question of the ability of the administrator to issue instructions on the stocks or transfer them into their own nominee name, our understanding is that the administrator has no rights over the securities held in the name of the legal owner as specified on the legal register.
This information is provided by Killik & Co to the best of their knowledge and belief.

[tjh290633]

It may be worth pointing out that City Equities used sponsored personal Crest accounts for their clients' share holdings.

TJH

I suspect those particular shareholders had no fuss in having their assets sorted out. I'll bet it was the poor nominee people that got faffed about.

They were, of course, transferred to Beaufort Securities.

Now the Receivers have control.

TJH

[PinkDalek]

There's plenty on *** CREST accounts and dodgy brokers elsewhere on TLF. Any chance of sticking to the subject matter?

*** Here's but one example, over at the Brokers and Share Dealing board viewtopic.php?p=135668#p135668

[Charlottesquare]

It seems odd to abolish the 2K allowance as this may well sweep a lot of 'accidental' shareholders into the net.

I was expecting instead the basic rate on dividends, currently 7.5%, to creep upwards towards the income rate of 20% over the years (and the higher bracket rates ditto).

.

That would be somewhat harsh, the company income suffers corporation tax and of course dividends are not deductible when computing said tax, the 7.5% was intended to be a substitute for the NI edge re dividends over salaries.

Whilst I have not crunched the numbers re a 20% tax on dividends within basic rate,and presumably commensurate uplift re higher rates, I am pretty certain that that would kill dividends stone dead re private companies, they would all stop paying and just bump salaries. That is fine re private companies where all shareholders are say directors, it is somewhat more difficult where this is not the case, minority shareholders in private companies would be well and truly shafted, thus say cutting out those whose shares have come to them re say inheritance of company shares where the parents and grandparents maybe worked in the business but they do not.

[Charlottesquare]

But when even the Tories turn on their own and punish BTL landlords, investors and other wealth creators, it is death by a thousand cuts.

Well one could point to Brexit and the ignoring of business warnings as a case in point, they certainly seem to want to tarnish what was one of their USPs and their other one, economic competence, also currently looks a tad broken.

[Julian]

It seems odd to abolish the 2K allowance as this may well sweep a lot of 'accidental' shareholders into the net.

I was expecting instead the basic rate on dividends, currently 7.5%, to creep upwards towards the income rate of 20% over the years (and the higher bracket rates ditto).

.

That would be somewhat harsh, the company income suffers corporation tax and of course dividends are not deductible when computing said tax, the 7.5% was intended to be a substitute for the NI edge re dividends over salaries.

Whilst I have not crunched the numbers re a 20% tax on dividends within basic rate,and presumably commensurate uplift re higher rates, I am pretty certain that that would kill dividends stone dead re private companies, they would all stop paying and just bump salaries. That is fine re private companies where all shareholders are say directors, it is somewhat more difficult where this is not the case, minority shareholders in private companies would be well and truly shafted, thus say cutting out those whose shares have come to them re say inheritance of company shares where the parents and grandparents maybe worked in the business but they do not.

Sadly I agree with BBLSP1. The "7.5% to creep upwards towards the income rate of 20%" has been all over the news this week after the IPPR report suggesting just that, well as I read it not even suggesting a "creep upwards" but what I took to be a suggestion for a single-step alignment.

I always felt that the old scheme of dividend tax credits was too good to last and I'm afraid that I feel the same about the current dividend tax rates. I do appreciate the issues of double taxation but my suspicion is that the vast majority of the voting public don't, and also perceive and impacts on higher dividend taxation as falling on the mega-rich as opposed to them, so maybe there are not as many political barriers to doing it as some might think. Also, to some extent the encroachment into double-taxation territory has already started with the change to the 7.5%/etc rates thus paving the way and giving dividend tax rate figures that can be subsequently tweaked ("tweaked" being a euphemism for "increased").

I have now become sufficiently concerned that the alignment of dividend and income rates is a real enough possibility to have modelled the effect on my income stream this week; the results are not pretty. The problem is, and bringing it back to practical considerations, I am not sure what steps I can take to prepare for such an eventuality except for transferring as much as I can into my ISA each year and releasing as much stored capital gain from my non-tax-sheltered holdings as I can each year so that, were I to want to dramatically reconfigure my holdings as a result of any future changes in dividend taxation, my existing holdings could be as agile as I can make them in terms of reducing any CGT liabilities when selling off any significant chunks.

- Julian

[kempiejon]

Like Julian I had considered the effect of 20% on my dividend income - so, as I'm still employed I fill my SIPP with my salary each year and stuff £40k into his and hers ISAs such that I'll have it all sheltered before the decade is out and I try to add any unsheltered new money to growthy, low yield shares, selling down my highest yielders to shelter each year.

[Charlottesquare]

Like Julian I had considered the effect of 20% on my dividend income - so, as I'm still employed I fill my SIPP with my salary each year and stuff £40k into his and hers ISAs such that I'll have it all sheltered before the decade is out and I try to add any unsheltered new money to growthy, low yield shares, selling down my highest yielders to shelter each year.

Not worried about the logical follow through- NI on pensions, rents etc?

If basic rate tax on dividends goes to 20% and higher rates also go up in tandem any thoughts re the FTSE?

You are getting into private investment company territory, all your shares owned by your own company so that dividends can compound tax free, as unless companies are to start being charged CT on dividends received (and that would have significant economic repercussions) then for those who hold shares outwith shelters it would be the only logical choice.

And when you also consider the wall of money that would instead lurch into property following such a policy change, the economic and social impact would be severe.

I can see a step up from the 7.5%, but 20% would be a game changer re investment behaviour.

[BrummieDave]

You've hit upon the same thing I was thinking, that such a move could push up property prices even higher, with a move away from equities to buy to let as a form of income generation.