Winter Newsletter 2017

1 / 4

Winter 2017/18
inside this issue…
u u Making Tax Digital for VAT: an update
u u Social media do’s and don’ts
u u Employers: are you ready for the new
auto-enrolment requirements?
u u Self assessment deadline is approaching
u u Business Round-up
u u Web Watch
u u Reminders for your Winter diary
Planning for the Dividend Allowance cut
With the Dividend Allowance set to be cut from £5,000 to £2,000 from April 2018, we consider how investors can
help to mitigate the impact of the change.
A brief overview
2016 saw significant changes to the rules on dividends, with the
introduction of a new Dividend Allowance (DA) of £5,000 per
annum, as well as an increase in the headline rates of tax. So how
does it work?
The DA exists in addition to an individual’s Personal Allowance
and savings allowances. It charges £5,000 of the dividend income
at 0% tax – the dividend nil rate. Dividend income in excess of the
DA is currently taxed at the following rates:
y y 7.5% on dividend income within the basic rate band
y y 32.5% on dividend income within the higher rate band
y y 38.1% on dividend income within the additional rate band.
However, just two years after the DA was introduced by his
predecessor George Osborne, Chancellor Philip Hammond
announced that it would be cut from £5,000 to £2,000, with
effect from 6 April 2018.
Planning opportunities
With the planned reduction in the DA just around the corner,
investors may want to consider strategies to help lessen the
impact of the change. Here we outline some key points to
consider, but do contact us for further advice.
Maximising the DA
Every individual is entitled to their own DA. If your investment
portfolio is likely to exceed the amount that will be protected
from income tax (approximately £67,000 in 2018/19), you might
want to transfer some shares to your spouse or civil partner, thus
spreading your investment to ensure that you utilise each person’s
individual allowance.
Making the most of ISAs
The cut in the DA means tax-free ISAs are likely to play an
increasingly important role in your investment strategy. The
overall annual subscription limit for ISAs increased to £20,000
for 2017/18 (up from £15,240 in 2016/17). With funds in an ISA
exempt from tax, it is important to utilise this allowance before
the start of the new tax year.
If you think you will be affected by the cut in the DA, Equity
ISAs should be one of the first things to consider. By investing
the maximum £20,000 into an Equity ISA now, with a further
£20,000 on 6 April 2018, protection can be given for £40,000 of
a portfolio. For a married couple or civil partners, the combined
figure doubles to £80,000.
Increasing pension contributions
If you have income from employment or self-employment, you
may also effectively reduce your marginal rate of tax on dividends
by increasing pension contributions and taking advantage of the
available tax relief.
For taxpayers with adjusted net income above £100,000,
maximising pension contributions may allow you to obtain relief at
the effective rate of 60%. Pension contributions can be made at
up to 100% of relevant earnings, subject to the annual allowance,
which is currently £40,000. Those with threshold income above
£110,000 may have their annual allowance tapered away to a
minimum of £10,000. Any unused allowances may be carried
forward for up to three years. This is a complex area so please
speak to us for further advice.
We can help you plan to maximise your personal
wealth and minimise the tax bill – please contact us
for advice.
T O P I C A L I N F O R M A T I O N F R OM M A G E E G A MMO N
Henwood House, Henwood,
Ashford, Kent TN24 8DH
Phone: 01233 630000
Email:
Website:
Principals: Jon Gammon, Antony Tutt, Mark Britland, Abhi Jain, Roland Parry, Andy Childs
Managers: Julie Devine, Linda Hayward, Peter Horton, Barry Spokes, Andy Vanburen, Steven Wanstall
Magee Gammon is a trading style of Magee Gammon Partnership LLP and Magee Gammon Corporate Limited.
Registered to carry on audit work in the UK and Ireland, and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.