More on the dividend tax
As we mentioned in last month’s newsletter, from April 2016, the present dividend tax credit of 10% is being abolished and is being replaced with an annual dividend allowance of £5,000.
To recap, dividends received in excess of the £5,000 allowance will be taxed at increasing rates according to your highest rate of Income Tax:
These changes will make a difference to all limited company shareholder/directors who presently receive a small salary and large dividends. Many will be paying more tax as a result.
We recommend that all affected readers undertake a review of their tax position from April 2016 so that they are aware of the financial impact on their personal disposable income.
But what about tax payers who receive significant dividend income from diverse investments and do not, necessarily, run their own company?
If your dividend income is likely to exceed the £5,000 limit you could consider the following actions to minimise any additional dividend tax:
Make sure you use the ISA limit to transfer high dividend yield shares into this tax free environment.
Each person will be entitled to the £5,000 relief so spouses could consider equalising their share holdings in an attempt to make the most of their individual £5,000 allowance.
As the additional tax, on dividends received in excess of the £5,000 limit, is at higher rates for higher rate and additional rate Income Tax payers, consider transferring shares to a lower taxed spouse to restrict tax to the lower 7.5% rate.
If you are a higher or additional rate tax payer and you have significant dividend income, you could look for ways to reduce your overall taxable income and therefore reduce an additional dividend tax charge. For example, by deferring withdrawals from a drawdown pension.
If it is likely that you will be crossing the £5,000 Rubicon next year, now is the time to plan an effective tax mitigation strategy. Please call if you would like our assistance.
Vehicle Excise Duty changes from April 2017
If you are concerned about the annual cost of a VED license you may want to consider your car replacement options before the new VED regime starts April 2017. It will apply to all cars first registered after 1 April 2017.
From this date, VED will still be based on CO2 emissions, but the present generous rates for low CO2 vehicles will largely disappear. The only exception is zero emission vehicles which will continue to have a £0 charge.
VED will be split into two bands: a starter band, which will apply for the first year, and a standard rate, which will apply to subsequent years of ownership.
The rates gradually increase for the initial starter band. For emissions between 1 to 50g/km the starter rate is just £10. At the other extreme, cars with a CO2 rating in excess of 255g/km, the starter rate is a significant £2,000.
Owners of all vehicles with a CO2 emission rate in excess of 0g/km will then pay an annual, standard rate of £140 for the second and subsequent years of ownership.
Finally, cars with a list price above £40,000 will pay a supplement of £310 a year for the first 5 years at which the standard rate is applied. i.e. the annual standard rate for these vehicles will be £450 not £140.
FOR MORE DETAILS & INFO
CONTACT MORRIS COOK ON 01691 654545
