Posted Mar 08, 2016
This update covers:
1. Changes to dividend taxation
1. Changes to dividend taxation
The way in which the receipt of dividends from all sources, except for those received within pensions or ISAs, is treated in relation to income tax will be changing from the start of the new tax year.
From 6 April 2016, a new 0% rate will be introduced for everyone on the first £5,000 of dividends received within a tax year – effectively becoming part of the basic rate tax band. Dividends received over £5,000 in a tax year will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Under the new system there will be those who benefit by paying less income tax but also some who will find themselves paying more tax on their dividends than in previous years. The increase in the personal allowance in the 2016/17 tax year to £11,000 and the increase in the higher rate income tax threshold to £43,000 will play a part in determining those who will have to pay more, although the exact point at which an increase in the amount of tax due will begin depends on individual circumstances.
A basic rate taxpayer with income and dividends of up to £5,000 within the basic rate tax band of £32,000 (£43,000 - £11,000) will see no change in their tax position. However, if their dividends are in excess of £5,000 they will have to complete a self-assessment tax return so that the additional liability of 7.5% can be collected. Higher rate taxpayers, with dividends received of up to £5,000, will also pay no tax on their dividends. However, for higher rate taxpayers receiving dividends over around £21,666 per year and additional rate taxpayers receiving dividends over around £25,250 per year, there is likely to be significantly more tax to pay.
An example for a higher rate taxpayer is given below, which assumes that other income uses up the available personal allowance.
A higher rate taxpayer in 2016/17 receives £60,000 dividend income.
The first £5,000 is covered by the 0% band.
The next £27,000 is taxed at the new 7.5% rate - £27,000 x 7.5% = £2,025
The next £28,000 is taxed at the 32.5% rate - £28,000 x 32.5% = £9,100
Total tax due: £2,025 + £9,100 = £11,125
Under the 2015/16 rules, the dividend received of £60,000 would be grossed up to £66,666.
The first £32,000 would be taxed at 10% = £3,200
The next £34,666 would be taxed at 32.5% = £11,266
Tax due = £14,466
Minus tax credit of £6,666 = £7,800
Increase in tax in 2016/17 is £11,125 - £7,800 = £3,325.
In all cases where tax is due on dividends, any tax liabilities for 2016/17 will be collected on 31 January 2018. At this time, HMRC will also add 50% of the tax liability to the first self-assessment payment on account for 2017/18, also due 31 January 2018, with a further 50% due at the end of July 2018.
Such tax increases may mean that, for some investors, it is worth considering moving their investments into those that generate capital returns. The capital gains tax allowance continues to be more generous - £11,100 for the 2016/17 tax year - and liabilities taxed at 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers. Also, although the £5,000 0% band on dividend income may reduce the income tax liability for some, it should be remembered that income from dividends and savings will still count towards an individual’s total income and should be taken into account when considering if, for example, the higher income child benefit charge will apply.
2. Audiovisual presentation: Your revision timetable
3. Expected solution packages for April exams for R06 and AF5 - start preparing now
Our ability to provide detailed analysis in our R06 and AF5 expected solutions is based on the fact that the CII use a similar assessment method for each exam. This allows our panel of experts to identify, based on the information supplied by the CII before the exam, the questions you could most likely expect to face in the exam itself.
Our experts are qualified to at least chartered status and have considerable experience of preparing candidates for these exams.
Our expected solution packages:
If you use all of the tools provided in our expected solution packages, we can’t guarantee you that you will pass, but we can guarantee you will be well prepared.
4. GDPR – Data protection reforms
The key features
The main effects will be felt by data harvesting companies and it is meant to prevent the selling of lists of customers so that they can be pestered by lead generators and cold callers, which is good. Unintended consequences might be panic produced by lengthy terms and conditions and cumbersome hoops towards approaching someone to actually do business that they want to do. The devil will no doubt be in the detail, but this is something to look out for if you generate leads, buy in leads or engage in marketing activities such as prize draws especially.
Cloud operators will have a lot more to do than a small advisers office and we will probably see a raft of new terms and conditions coming out (that are too long for anyone to read).
The deletion aspect will have to be read alongside FCA rules and already a potential ‘clash’ can be seen with record keeping requirements and precautions against future complaints.
The massive potential fines are designed to make firms sit up and take notice however small. Loosing 4% of your income over a lost laptop, a hacked system or accidental email is pretty untenable whoever and whatever you are.
The ICO intends to start issuing detailed guidance in March 2016 and this is worth a decent review. Once everything is finalised there is anticipated to be a 2-year lead in with the new laws coming into effect during 2018.
The first suggested step to take now is to comply with existing Data Protection legislation.
Some things you can get in place:
Our Accredited CPD system includes access to our Data Protection course and can assist with your data protection training and will be updated as the new legislation takes effect.
The course is made up of these 10 short chapters:
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