The Lemon Fool

This Forum is described as covering "The Economy including Budgets".

"Spring Budget 2017"
https://www.gov.uk/government/topical-e ... udget-2017

"This page will contain all Spring Budget 2017 tax related documents from HM Revenue and Customs"
https://www.gov.uk/government/collectio ... -documents

So, Dividend Tax Allowance reduces from £5000 to £2000 from 6 April 2018.

Gives a year to think what to do about it, at least.

XFool wrote:So, Dividend Tax Allowance reduces from £5000 to £2000 from 6 April 2018.

Gives a year to think what to do about it, at least.

I don't really have much dividend income outside tax shelters so it doesn't affect me greatly but the dividend tax allowance was supposed to be a simplification coincident with the removal of the dividend tax credit. I wonder if we are being softened up for an eventual elimination of the allowance and equalisation of dividend tax and income tax...

SteMiS wrote:

XFool wrote:So, Dividend Tax Allowance reduces from £5000 to £2000 from 6 April 2018.

Gives a year to think what to do about it, at least.

I don't really have much dividend income outside tax shelters so it doesn't affect me greatly but the dividend tax allowance was supposed to be a simplification coincident with the removal of the dividend tax credit. I wonder if we are being softened up for an eventual elimination of the allowance and equalisation of dividend tax and income tax...

Does that reduction in the dividend tax allowance apply to all people who receive dividends?
The removal of the dividend tax credit brought more comparability in the taxation levels of dividends versus earnings+NIC, and offset to some extent the proposed reduction in Corp Tax. Although I have a modest portfolio of shares, this move would seem to be fair. I will have to move shares I own into an ISA over the next few years.

Nimrod103 wrote:Although I have a modest portfolio of shares, this move would seem to be fair.

Dividends are paid from profits which have at least notionally been taxed. Taxing them again in the hands of the recipient was double taxation. Freeing savers from tax was evidently last year's policy.

The increased ISA limits help reduce the hit for those who receive dividends as investors as opposed to those taking them as a less taxed salary or wage. It is tempting to look at the lists of potential HYP shares and treat them as a selling list rather than a buying one.

Nimrod103 wrote:

SteMiS wrote:

XFool wrote:So, Dividend Tax Allowance reduces from £5000 to £2000 from 6 April 2018.

Gives a year to think what to do about it, at least.

I don't really have much dividend income outside tax shelters so it doesn't affect me greatly but the dividend tax allowance was supposed to be a simplification coincident with the removal of the dividend tax credit. I wonder if we are being softened up for an eventual elimination of the allowance and equalisation of dividend tax and income tax...

Does that reduction in the dividend tax allowance apply to all people who receive dividends?
The removal of the dividend tax credit brought more comparability in the taxation levels of dividends versus earnings+NIC, and offset to some extent the proposed reduction in Corp Tax. Although I have a modest portfolio of shares, this move would seem to be fair. I will have to move shares I own into an ISA over the next few years.

Except dividends are out of the post tax income of companies so already taxed once. Even post corporation tax cut, a dividend of £83 started as pre tax income (in the company) of £100. The £83 dividend would then suffer tax, in the hands of a 40% taxpayer, of 32.5% or £27. So effectively the £100 income has suffered tax of 44%...

The double-tax argument is a red herring. Money always gets taxed when it changes ownership, so why not dividends as well?

1nv35t wrote:

StepOne wrote:The double-tax argument is a red herring.

Indeed, Herrings being food are VAT exempt

I think you mean zero rated, a different kettle of fish, but not if they are hot herrings from a takeaway!

SteMiS wrote:I don't really have much dividend income outside tax shelters so it doesn't affect me greatly but the dividend tax allowance was supposed to be a simplification coincident with the removal of the dividend tax credit. I wonder if we are being softened up for an eventual elimination of the allowance and equalisation of dividend tax and income tax...

I think very few people do. Especially with the growth of ISA allowances. The main target of that is people like me, who work through our own company and take some part of our hard-earned income as dividends from the company.

But bear in mind, the dividend taxation regime coincides with the reduction in corporation tax. So your dividends from most UK companies are actually being taxed less than in the past.

UncleEbenezer wrote:The main target of that is people like me, who work through our own company and take some part of our hard-earned income as dividends from the company.

Small increase in National Insurance tax:-

http://www.bbc.co.uk/news/business-39205701

SteMiS wrote:

Nimrod103 wrote:

SteMiS wrote:I don't really have much dividend income outside tax shelters so it doesn't affect me greatly but the dividend tax allowance was supposed to be a simplification coincident with the removal of the dividend tax credit. I wonder if we are being softened up for an eventual elimination of the allowance and equalisation of dividend tax and income tax...

Does that reduction in the dividend tax allowance apply to all people who receive dividends?
The removal of the dividend tax credit brought more comparability in the taxation levels of dividends versus earnings+NIC, and offset to some extent the proposed reduction in Corp Tax. Although I have a modest portfolio of shares, this move would seem to be fair. I will have to move shares I own into an ISA over the next few years.

Except dividends are out of the post tax income of companies so already taxed once. Even post corporation tax cut, a dividend of £83 started as pre tax income (in the company) of £100. The £83 dividend would then suffer tax, in the hands of a 40% taxpayer, of 32.5% or £27. So effectively the £100 income has suffered tax of 44%...

Indeed, but my point was that Hammond is moving to lower corp tax, and dividends are not subject to NIC. When everyone is clamouring to spend more on the NHS and elderly care, why should dividends not be subject to NIC? As Uncle E says, people like us take most or even all income via dividends, so it's a bit unfair on the PAYE crowd.

supremetwo wrote:

UncleEbenezer wrote:The main target of that is people like me, who work through our own company and take some part of our hard-earned income as dividends from the company.

Small increase in National Insurance tax:-

http://www.bbc.co.uk/news/business-39205701

Yes but isn't the Class 4 increase for the self-employed?

Nimrod103 wrote:... As Uncle E says, people like us take most or even all income via dividends, ...

If I've understood the reduction in the dividend allowance correctly, the impact on those basic rate taxpayers with taxable dividend income of, say, £5,000 will cost them a further £225 per annum, whereas a little while back they had zero liability. Higher rate a further £975 per annum and top rate £1,125 (if my calculator is working).

From https://www.gov.uk/government/publicati ... -reduction It is estimated that this will affect around 2.27 million individuals in 2018 to 2019 with an average loss of around £315.

Unfortunately they don't also explain on that page how the reducing CT rates will impact upon the net of all taxes position.

Nimrod103 wrote:Indeed, but my point was that Hammond is moving to lower corp tax, and dividends are not subject to NIC. When everyone is clamouring to spend more on the NHS and elderly care, why should dividends not be subject to NIC?

Why pick on just dividends? The reality is that NICs are not applied on any form of investment income. It's also not applied therefore on interest, capital gains, rents, pension payments, welfare payments, selling options premia and so on. And you stop paying NICs in any event at retirement age.

What you're really advocating for is a massive change in policy away from the principle that has prevailed for decades - that NICs are paid only on earned/employment income.

Over my dead body!

And everyone is not "clamouring to spend more on the NHS and elderly care". I'm not.

An update on MTD.

Making Tax Digital for business

https://www.gov.uk/government/publicati ... r-business

This tax information and impact note informs businesses, self-employed people and landlords that they will be required to start using the new digital service from April 2018 ... The government announced at Spring Budget 2017 a one-year deferral from the mandating of Making Tax Digital for Business (MTDfB) for unincorporated businesses and landlords with turnovers below the VAT threshold.

https://www.gov.uk/government/publicati ... r-business includes:

Operative date These requirements will apply to businesses’ Income Tax and Class 4 NICs obligations from April 2018 if their turnovers are in excess of the VAT threshold.

For those non-exempt businesses below that threshold, these requirements will apply from April 2019.

Businesses that are registered for, and pay VAT, will be required to operate MTDfB from April 2019, and those that pay CT from April 2020.

SteMiS wrote:I don't really have much dividend income outside tax shelters so it doesn't affect me greatly

Possibly. But a further wrinkle is that now, when companies return capital to investors, it is usually by means of a special dividend. Which is a dividend, therefore subject to dividend taxation.

but the dividend tax allowance was supposed to be a simplification coincident with the removal of the dividend tax credit.

I have certainly not found it to be a "simplification".

StepOne wrote:The double-tax argument is a red herring. Money always gets taxed when it changes ownership, so why not dividends as well?

It hasn't changed ownership. The people paid the dividends are the shareholders who collectively are the owners of the company.

ursaminortaur wrote:

StepOne wrote:The double-tax argument is a red herring. Money always gets taxed when it changes ownership, so why not dividends as well?

It hasn't changed ownership. The people paid the dividends are the shareholders who collectively are the owners of the company.

But the company and its shareholders are different legal entities. Otherwise I could divert all my personal expenditure through my consulting company. And if my company went bust, I would be come personally liable.

1nv35t wrote:I wonder how many more that previously didn't have to file a self assessment will now have to. More late filing penalty benefits for the Treasury I guess (unable to get through on the phone lines to resolve queries, and aren't we moving over to twice yearly filings in the next year or two?).

Are we (apart from some businesses)? I hope not. Where did you see that ? Mind you, we already seem to have the annual 'negotiate your new annual Tax Code with HMRC' plus the annual Self Assessment.

XFool wrote:

1nv35t wrote:... and aren't we moving over to twice yearly filings in the next year or two?).

Are we (apart from some businesses)? I hope not. Where did you see that ? ...

Brief Overview from the Budget releases here:

https://www.gov.uk/government/publicati ... ndividuals

Nothing there forcing individuals (not in business) to update quarterly, yet. Merely about the "Personal Tax Account" of which you are familiar, given your posts on Taxes - Practical.

It includes:

As the Personal Tax Account develops, customers will use it to tell us when things change. Over time, customers will no longer need to complete tax returns at the end of the year.