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Limiting dividends in expectation of drop in 50% tax rate

I have a scenario where a client has a one-man band company with minimum salary + dividends setup.

Client is keen to cap the dividend payments such that taxable income falls below £100k so that the personal allowance abatement doesn't kick in.

This means that the distributable reserves are building up in the company.

Client thinks that if the 50% (or 42.5% in the case of dividends) will eventually (soon?) be abolished, allowing free flow of dividends and champagne.

Has anyone else using similar logic, or is there anything I have missed?


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By pauld
18th Nov 2011 16:58

makes sense.....

Although obviously 42.5% doesnt kick in until after £150K. So long as they dont need the cash, can leave it in the company or perhaps put to other use e.g. pension.

Is client married ? can he transfer shares to wife?



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18th Nov 2011 17:36

Thanks pauld

I should have said, the assumption is that the personal allowance abatement would be withdrawn at the same time as the 50% tax rate.  You could take the view that the personal allowance abatement will never be withdrawn... depends on your perspective I suppose!

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