Make life less
risky and more
profitable
Tax planning has been getting a lot
of bad press recently, however for
individuals and business owners the
need for specialist tax advice has never
been greater.
The Chancellor’s Autumn Statement, to be delivered
on 25th November, should put flesh on the bones of a
number of changes announced in the Summer Budget.
As the Government has a working majority, it is likely
that most of the changes reported will become law in the
near future. Here are a few areas worth consideration:
Landlord’s tax relief restricted
annual dividend allowance of £5,000. However, latest
guidelines reveal that the £5,000 dividend allowance is
not an ‘allowance’. Instead, it is a zero-rate of income
tax applied to dividend income only, which will apply to
all taxpayers whatever their marginal tax rate.
Dividends are currently taxed as the highest slice of
income, so they are always subject to the taxpayer’s
highest marginal tax rate. This will continue to apply, but
the first £5,000 of that dividend income will be taxed at
zero rate. Dividends in excess of £5,000 will be taxed
at:
• 7.5% within the basic rate band
• 32.5% within the higher rate band
The Summer Budget introduced a measure to restrict
the amount of tax relief that landlords will be able to
claim for finance costs on the purchase of residential
properties. Tax relief will be restricted to the basic rate
of Income Tax. This will be introduced gradually from 6
April 2017.
• 38.1% in the additional rate band
Finance costs include mortgage interest, interest
on loans to buy furnishings and fees incurred when
taking out or repaying mortgages or loans. No relief is
available for capital repayments of a mortgage or loan.
Landlords will no longer be able to deduct ANY of their
finance costs from their property income to arrive at
their property profits. This has further implications if that
increases total income above the thresholds for Child
Allowance and at £100,000 when personal allowances
are withdrawn. They will instead receive a basic rate
reduction from their income tax liability for their finance
costs, which is likely to entail a far higher tax bill than
under the previous system.
Furthermore, it seems that a large number of people
who receive dividends over £5,000 per annum, but do
not have a higher rate tax liability and thereby no tax to
pay under self-assessment, will now have to file a Tax
Return as they will have a tax liability to pay. We will
have to wait to see if there will be a short-cut for people
in that situation.
The new dividend ‘bombshell’
A major concern for investors and many small
companies is the new dividend allowance that will
apply from 6 April 2016.
On this date, the current, notional tax credit of 10%