Changes to dividend taxation the crossover point

Transcription

1 Changes to dividend taxation the crossover point This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients.

2 Mark King Technical consultant Tax details are subject to change and individual circumstances. The information in this presentation is based on our interpretation of current law and HM Revenue & Customs practice.

3 Learning objectives By the end of the session delegates will be able to; Understand how the proposed changes to dividend taxation will impact upon UK taxpayers. Understand how the dividend tax allowance will operate. Discuss and explain this subject with a client in a clear and concise way. Apply this knowledge to appropriate, individual, client scenarios.

4 The impact of the new 5,000 tax free dividend allowance For those with total dividend income up to 5,000 BRT no difference HRT better off (no additional tax liability) ART better off (no additional tax liability) For those with total dividend income above 5,000 BRT worse off (new 7.5% tax liability) HRT It depends! ART - It depends!

5 5,000 dividend basic rate taxpayer 2015/ /17 5,000 received net BRT liability satisfied No further tax 5,000 received tax free

6 Dividends received of more than 5,000 basic rate taxpayer 2015/16 6,000 received net BRT liability satisfied No further tax

7 Dividends received of more than 5,000 basic rate taxpayer 2015/ /17 6,000 received net BRT liability satisfied No further tax Dividend received 6,000 Dividend tax free allowance 1, % 5, Immediately dividends exceed 5,000 the tax position under the 2016/17 regime will be worse for a basic rate taxpayer.

8 Basic rate taxpayer when do they become worse off? Dividend Investment 1% 2% 3% 4% 5% 6% 83, ,666 2,499 3,322 4,165 5, ,000 1,000 2,000 3,000 4,000 5,000 6, ,000 2,000 4,000 6,000 8,000 10,000 12, ,000 3,000 6,000 9,000 12,000 15,000 18, ,000 4,000 8,000 12,000 16,000 20,000 24, ,000 5,000 10,000 15,000 20,000 25,000 30,000 Basic rate tax payers will have a new 7.5% tax liability on dividends over 5,000 in 2016/17. Assumes no other dividend income is received.

9 5,000 dividend higher rate taxpayer 2015/16 Net dividend received 5,000 Gross dividend 5, % 1,806 (Less 10% tax credit) ( 556) Additional tax to pay 1,250

10 5,000 dividend higher rate taxpayer 2015/ /17 Net dividend received 5,000 Gross dividend 5, % 1,806 (Less 10% tax credit) ( 556) Additional tax to pay 1,250 5,000 received tax free 1,250 less tax to pay

11 10,000 dividend higher rate taxpayer 2015/ /17 Net dividend received 10,000 Dividend received Gross dividend 11,111 Dividend tax free allowance 32.5% 3,611 5, % (Less 10% tax credit) ( 1,111) Additional tax to pay 2, less tax due 10,000 5,000 1,625

12 30,000 dividend higher rate taxpayer 2015/ /17 Net dividend received 30,000 Dividend received Gross dividend 33,333 Dividend tax free allowance 32.5% 10,833 25, % (Less 10% tax credit) ( 3,333) Additional tax to pay 7,500 30,000 5,000 8, more tax due So what is the cross over point?

13 21,667 dividend higher rate taxpayer crossover point 2015/16 Net dividend received 21,667 Gross dividend 24, % 7,824 (Less 10% tax credit) ( 2,407) Additional tax to pay 5,417

14 21,667 dividend Higher rate taxpayer crossover point 2015/ /17 Net dividend received 21,667 Dividend received Gross dividend 24,074 Dividend tax free allowance 32.5% 7,824 16, % (Less 10% tax credit) ( 2,407) Additional tax to pay 5,417 Tax neutral 21,667 5,000 5,417 The calculations get more complicated where the dividends straddle the tax bandings!

15 Higher rate taxpayers better or worse off? Dividend Investment 1% 2% 3% 4% 5% 6% 83, ,666 2,499 3,322 4,165 5, ,000 1,000 2,000 3,000 4,000 5,000 6, ,000 2,000 4,000 6,000 8,000 10,000 12, ,000 3,000 6,000 9,000 12,000 15,000 18, ,000 4,000 8,000 12,000 16,000 20,000 24, ,000 5,000 10,000 15,000 20,000 25,000 30,000 Assumes no other dividend income is received

16 5,000 dividend additional rate taxpayer 2015/16 Net dividend received 5,000 Gross dividend 5, % 2,083 (Less 10% tax credit) ( 556) Additional tax to pay 1,527

17 5,000 dividend Additional rate taxpayer 2015/ /17 Net dividend received 5,000 Gross dividend 5, % 2,083 (Less 10% tax credit) ( 556) Additional tax to pay 1,527 5,000 received tax free 1,527 less tax to pay So what is the cross over point for additional rate taxpayers?

18 25,250 dividend additional rate taxpayer crossover point 2015/16 Net dividend received 25,250 Gross dividend 28, % 10,521 (Less 10% tax credit) ( 2,806) Additional tax to pay 7,715

19 25,250 dividend additional rate taxpayer crossover point 2015/ /17 Net dividend received 25,250 Dividend received Gross dividend 28,056 Dividend tax free allowance 37.5% 10,521 20, % (Less 10% tax credit) ( 2,806) Additional tax to pay 7,715 Tax neutral 25,250 5,000 7,715 The calculations get more complicated where the dividends straddle the tax bandings!

20 Additional rate taxpayers better or worse off? Dividend Investment 1% 2% 3% 4% 5% 6% 83, ,666 2,499 3,322 4,165 5, ,000 1,000 2,000 3,000 4,000 5,000 6, ,000 2,000 4,000 6,000 8,000 10,000 12, ,000 3,000 6,000 9,000 12,000 15,000 18, ,000 4,000 8,000 12,000 16,000 20,000 24, ,000 5,000 10,000 15,000 20,000 25,000 30,000 Assumes no other dividend income is received.

21 Summary the cross over point Crossover point where taxpayers become worse off in 2016/17 compared to 2015/16. Basic rate taxpayer 5,000 Higher rate taxpayer 21,667 Additional rate taxpayer 25,250

22 Important information Information about tax is based on AXA Wealth s interpretation of current legislation and HM Revenue & Customs' practice. Tax treatment can change and depends on your client s personal circumstances. The information contained in this presentation does not constitute advice. It is designed for financial adviser use only and is not intended for use with individual investors. Any sample screen shots displayed are correct at date of issue but may be subject to change. AXA Wealth, Winterthur Way, Basingstoke RG21 6SZ. Telephone number: As part of our commitment to quality service and security, telephone calls may be recorded. AXA Wealth includes the following companies: Architas Multi-Manager Limited (No ), AXA Portfolio Services Limited (No ), AXA Wealth Services Limited (No ) and AXA Wealth Limited (No ). All of these companies are registered in England and limited by shares. Their registered office is 5 Old Broad Street, London EC2N 1AD. Architas Multi-Manager Limited, AXA Portfolio Services Limited and AXA Wealth Services Limited are authorised and regulated by the Financial Conduct Authority. AXA Wealth Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Each company promotes and distributes its own products. AXA Wealth Services Limited also promotes and distributes the products of AXA Isle of Man Limited and certain AXA Life Europe Limited products in the United Kingdom. Details of the companies offering specific products are shown in the product literature AXA Wealth is a marketing brand used by AXA Portfolio Services Limited.