The End of the Dividend??????

Giving a presentation recently I wanted to highlight the issue of the changes to the dividend tax regime, which seems to have slipped under the radar of a lot of people.

Maybe because there has been plenty going on in the wider world with everything from car manufacturers fiddling the numbers, political scandals, and St James Place in the press (again) for alleged (ahem) lack of transparency on fees.

But I am not going to talk about any of that exciting stuff.

Instead I want to go back a couple of weeks before any of that was news, to the presentation we did to some clients and guests.

I gave a short resume of Murphy Wealth, where we have come from to where we are today (including a rather amusing picture of Brian in his twenties, available on request).

This was followed by highlighting a few of the key issue we see on the horizon for clients.

One of these was the Chancellors announcement in July that he was changing the dividend tax regime.

Without going into too much detail this will impact on a large number of people who receives dividend’s either from their business as a shareholder, or from an unwrapped investment portfolio.

The notional 10% dividend tax credit has been scrapped and a £5000 tax free band introduced.

While this may seem generous on the surface it should be noted the the treasury expect to generate over £8 billion from these changes.

See the table below for more detail.

  2015/16 2016/17
Non taxpayers 0% 0%
Basic rate tax payers 0% 7.5%
Higher-rate taxpayers 25% 32.5%
Additional Rate Taxpayers 30.6% 38.1%

 

You can read more here from HMRC

As you might expect it is not as simple as the table suggests and there will be some fairly complex calculations required, particularly for business owners who take dividends instead of salary, to figure out the best income combination.

For those with large investment portfolios, particularly those designed for income, you will want to start looking at some non income producing (investment bonds back in vogue?) or tax free (ISA/VCTs) environments.

There is also an argument for businesses declaring a large dividend in the 2015/16 tax year before the changes take effect.

As I was writing this we had a discussion in the office and there was only one thing that was clear, this will affect everyone differently depending on your own circumstances.

The dividend will still have its place in the mix but the structure may be different going forward.

If you want to chat about the dividend tax changes or anything else, myself and the team would be delighted to hear from you.

Also please feel free to share this with anyone you feel might be interested.

This is not intended as advice and should not be treated as such.