The value of shares you can hold outside an Isa before paying dividend tax has shrunk from £135,000 to £46,500, according to new research. In April last year, the dividend allowance fell from £5,000 to £2,000 (HMRC).
Assuming a dividend yield of 4.3% (the current yield on the FTSE All Share ex Investment Companies), this shrinks the amount you can hold outside an ISA or pension without facing dividend tax by £90,000.
The best way to avoid paying tax on dividends is to hold shares in an Isa. For dividends on shares held outside an Isa, basic rate taxpayers are taxed at 7.5% on the excess, higher rate taxpayers at 32.5% and additional rate taxpayers at 38.1%. Rising dividends yields or further cuts in the allowance could see investors facing dividend tax in future. As such it is worth trying to channel as much of your savings as possible into a tax-sheltered product.
Loan charge fallout
The 2019 loan charge means ill-advised IT and NHS contractors face staggering bills from HMRC.
It is turning into one of the ugliest, most emotional and turbulent battles ever fought between the tax authorities and alleged tax avoiders. The battle is over the innocuously named 2019 Loan Charge. This measure is designed to claw back unpaid taxes by people who, HMRC says, used so-called disguised remuneration schemes since April 1999 – with the demands for repayment kicking in from this April. MPs have now urged the City watchdog to explain why HM Revenue & Customs has asked tens of thousands of self-employed workers to consider re-mortgaging their homes or take out loans to settle huge tax bills. A cross-party group of MPs objected to letters that HMRC has sent to about 50,000 individuals facing the loan charge — a new law that will tax up to 20 years of income received via “disguised remuneration schemes” in one year. Letters sent by HMRC and seen by the Financial Times state: “It is expected that you use every means to meet your obligations and pay the tax and interest liabilities that are due. This may include raising a loan or selling other assets.”
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