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Interaction of Dividend Allowance and CGT 16-17

Interaction of Dividend Allowance and CGT 16-17

Starting to think about 16-17 for clients in more detail, and modelling the office templates etc.

Suppose in round terms:

PA= £10k
BRB £30K

Client has earned income £32k and dividend £8k.

The Dividend Allowance covers £5k of the dividend, the balance taxed at 7.5%

Now suppose client has Capital Gain of £4k over AE?

Logically, I think the element of dividend covered by the Dividend Allowance is still using BRB, so BRB fully used and CGT is all at 28%

HMRCs guidance implies dividends being top slice of income, but doesn't go on to indicate how this effects banding for, say, CGT (or for that matter PA abatement). 

HMRCs own examples are quite simplistic - welcome to .gov world I guess, and noddy language publications.

Anyone any thoughts?  (other than tax and logic not going in the same post)

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18th Feb 2016 16:29

CGT is worked out afterwards

As you do now, you would work out the total taxable income and from there determine what part of the gain, if any, is taxed at 18% and what is at 28%. The dividends taxed at 0% are still taxable income, just income that is taxed at 0%.

If you were working it out now (as in for 2015/16) you would include dividends as income to work out the CGT rate, that hasn't changed under the new system, the "top-slice" of income is still income and as such is included before working out the band that the capital gain falls in.

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18th Feb 2016 17:11

Agree

There's no change - dividends are still the top slice of income and CGs, for the purpose of determining what rate to use, are the slice above that.

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19th Feb 2016 17:13

Yes, I get that dividends are still top rate.

My Q is whether the Dividend Allowance reduces - exempts - part of the sum of dividend or merely creates a 0% band.

I think it's just a 0% band, and that ties in with the last example in HMRCs factsheet.

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19th Feb 2016 17:20

not exempt

girlofwight wrote:
Yes, I get that dividends are still top rate. My Q is whether the Dividend Allowance reduces - exempts - part of the sum of dividend or merely creates a 0% band. I think it's just a 0% band, and that ties in with the last example in HMRCs factsheet.

Agreed. It is a 0% band.

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19th Feb 2016 17:33

Its doesnt reduce or exemot the band
£4k Gain would be liable at 18% on remainder of BR limit using your £40k mix above and rest taxed at 28%.

So using your round figures. £11k personal allowance then £29k of the basic rate band used, ie your £40k in 2016/17. The £4k gain would be £3k BR and £1k HR. Just becasue its taxed at an effectively zero rate doesnt change the fact that added all together its still taxable income for determining the bands.

Thats how it was explained to me

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19th Feb 2016 17:38

Nil

It's a nil rate band.

You certainly don't disregard it for the purposes of calculating your total income. That goes for deciding what rate of dividend tax you pay and the CGT rate.

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19th Feb 2016 19:25

Agreed

It is a pity that the Chancellor, and even the revenue in example 1 of their fact sheet talked about the allowance as being an exemption - it isn't, it is a zero rate band which applies reagrdless of the marginal rate that the remainder of the dividend would be chargeable at.  Of course although dividends are still included as part of total income as mentioned, there is no longer a tax credit to gross the dividend up by so a dividend of £18,000 this year is gross income of £20,000 but next year gross income of £18,000 only, can help a bit with gains at the margin...

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By js.btp
25th Feb 2016 14:32

personal allowance or 0% band?

I have also been looking at this - I think the basic question is that the figures are worked out on total income less personal allowance - so is the interest and dividend rates to be treated like a personal allowance or a nil rate band?  I had my first 2017 PAYE code recently for a director client and it showed £11000 + £500 for interest on his coding, but no dividend allowance.

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25th Feb 2016 14:41

That's because

js.btp wrote:

I have also been looking at this - I think the basic question is that the figures are worked out on total income less personal allowance - so is the interest and dividend rates to be treated like a personal allowance or a nil rate band?  I had my first 2017 PAYE code recently for a director client and it showed £11000 + £500 for interest on his coding, but no dividend allowance.

it's a 0% band not an allowance
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25th Feb 2016 14:49

It wouldn't be

js.btp wrote:

I have also been looking at this - I think the basic question is that the figures are worked out on total income less personal allowance - so is the interest and dividend rates to be treated like a personal allowance or a nil rate band?  I had my first 2017 PAYE code recently for a director client and it showed £11000 + £500 for interest on his coding, but no dividend allowance.

Savings allowance and Dividend allowance are very different animals.

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25th Feb 2016 14:40

As has been stated

numerous times in numerous threads, including in this one, including in fact in the post above yours, it's a nil rate band.

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26th Feb 2016 16:09

Different animals?

Both are a zero rate band and if there is a difference it is the three levels that a taxpayer is entitled to, £1,000, £500 or nil but they do work the same way.  From other comments on AW you are more likely to get a restriction of allowance to claw back the liability on dividends, even though it is not yet law.  As any interest would not be taxed under PAYE it is odd that you think that a £500 personal savings allowance has been added to a code number.  HMRC also have a new tool to claw back liability when the Finance Bill becomes law - clause 71 of the draft bill - a simple assessment procedure to operate as an alternative to self assessment.

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01st Mar 2016 13:55

Yes - Different

Paulsoper wrote:

Both are a zero rate band and if there is a difference it is the three levels that a taxpayer is entitled to, £1,000, £500 or nil but they do work the same way.  From other comments on AW you are more likely to get a restriction of allowance to claw back the liability on dividends, even though it is not yet law.  As any interest would not be taxed under PAYE it is odd that you think that a £500 personal savings allowance has been added to a code number.  HMRC also have a new tool to claw back liability when the Finance Bill becomes law - clause 71 of the draft bill - a simple assessment procedure to operate as an alternative to self assessment.

Yes, they're different.  It's not so much the zero rate band, it's what happens after that.

Savings are charged to Income Tax.

Dividends are charged to Dividend Tax at a rate depending on your income level.  More akin to CGT.

 

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29th Feb 2016 13:41

Tax credits

Does anyone know what impact interest and dividends will have for tax credits from 2016 onwards? Will the £5000 nil-rate dividend band also be available for tax credits or will they be included in full? What about the personal savings allowance?

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29th Feb 2016 13:48

Cunning ploy

Despite describing the 'allowances' as tax free they quite clearly aren't.  Simple a zero rate on the first amount of relevant income, they still count as part of total income for taxation purposes, hence causing clawback of child benefit where total income exceeds £5,000, loss of personal allowances where total income exceeds £100,000 - they will still be part of income for the purpose of calculating tax credit entitlement I am sure.

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29th Feb 2016 14:49

Gosh!

Paulsoper wrote:

Despite describing the 'allowances' as tax free they quite clearly aren't.  Simple a zero rate on the first amount of relevant income, they still count as part of total income for taxation purposes, hence causing clawback of child benefit where total income exceeds £5,000, loss of personal allowances where total income exceeds £100,000 - they will still be part of income for the purpose of calculating tax credit entitlement I am sure.

Politicians twisting the truth !!

Whatever next ?

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By DMGbus
29th Feb 2016 13:57

Old vs new - divis / tax credits

OLD SCHEME:

Receive £9,000 is taxed as £9,700 for Tax Credits (assume no other sundry income... being £9k received net = £10k grossed up less £300 disregard)

NEW SCHEME:

Receive £9,000 is taxed as £8,700 for Tax Credits (no grossing up anymore, just deduct the £300 other income disregard)

EFFECT:

Lower income of £1000, but partially offset by increase in taper rate, if the following is still upto date / correct.

http://www.litrg.org.uk/latest-news/news/150709-tax-credits-cuts-%E2%80%...

 

 

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03rd Mar 2016 16:49

Any Answers Answered

Giles Mooney and Tim Good of TAXtv answer the original poster’s question in this short video clip.

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