The changes are quite radical; the way dividends are taxed will change. You will pay more tax on dividends but less higher rate tax. The dividend tax credit will disappear but there is a new dividend tax at 7.5%, 32.5% and 38.1%. The best way to show this is by example. Say I earn a salary of £10,600 through my company and receive £82,000 in dividends having made a profit of £100,000, I have no other income.
|Salary – covered by Personal allowance||Nil|
|To receive £82,000 in dividends your company will have paid corporation tax at 18%||18,000|
|The first £5,000 of dividends is tax free||Nil|
|The next £31,785 is taxed at 7.5%||2,384|
|The rest (£45,215) is taxed at 32.5%||14,694|
|Total (on overall income of £110,600)||£35,078|
The tax rates on money coming out of companies will be:
|£||Current %||Future %|
|10,601 – 15,600||20||18|
|15,601 – 42,385||20||24.1|
|42-386 – 47,385||40||24.1|
|47,385 – 100,000||40||44.7|
Note that because you get a personal allowance and the first £5,000 of dividends is tax free the limit before you pay higher rate tax will effectively increase by £5,000 BUT you pay tax at a higher rate.
The current 20% will reduce to 19% in 2017 and then to 18% in 2020.
This will increase next year to £11,000 and the higher rate threshold to £43,000.
A handy increase in the amount you don’t have to pay from increasing from £2,000 to £3,000.
Contractors Personal Service Companies
He alluded to these and wants to tighten up on them, but nothing was specifically proposed. There will be a consultation.
These will be much less generous with a number of ways in which the system will be tightened up.
For those earning over £150,000 your pension contributions will be restricted to £10,000pa.
You will only receive basic rate tax relief on mortgage interest. This will be phased in but will have a profound effect on wealthy landlords. Buying property through a limited company is becoming increasingly tax efficient. The 10% wear and tear allowance whether or not you incur a cost will disappear.
Annual Investment Allowance
This will increase to £200,000 for the foreseeable future. Previous announcements would have reduced this to £25,000 from January 2016. This means for small companies they can write off most fixed asset purchases in the year of acquisition.
The changes which effect estates valued at under £2 million will allow you to have the current £325,000 limit plus £175,000 for your house. These allowances are transferable between married couples giving £1,000,000 per family. Phased in between now and 2020/21
The Minimum Wage
The current rate for people over 21 is £6.50 p/h. The new rate will be the ‘living wage’ for those over 25 and will be set at £7.20 from April 2016 rising to £9.00 by 2020.
Insurance Premium tax
This is going up to 9.5% from 6%, a little more tax for us all.
These are people who live and bring up their families in the UK, but because of some overseas heritage they are taxed as foreigners. If they have lived in the UK for more than 15 of the last 20 years they will be taxed like the rest of us.