The Budget is often seen as an exercise in balancing the books. Cynics might arguably say that it owes more to ‘smoke and mirrors’ than economics. There are always going to be increased costs, rises in taxation and other elements of red tape, but look carefully at the detail and you will also find little opportunities to benefit from.
Dividend tax rates are set to rise next year – a disincentive to encourage business owners not to rely on dividends as a tax efficient form of remuneration.
That’s the bad news, now let’s look at the good news: Investors will now receive a £5,000 p.a. tax free allowance to offset against their dividends. If you use this in conjunction with the new £1,000 p.a. tax free interest on cash savings (including investment bonds) and you continue to use your ISA allowances, you have a very substantial opportunity to generate a tax free income.
So let’s have a look at how big this opportunity is.
- Assuming an average dividend yield of 3%, you would need to have a portfolio in excess of £166,660 before any dividends are taxable.
- If we use an average 1% p.a. as a cash savings rate, you would be able to squirrel away £100,000 into cash deposits.
- This already represents £266,660 and that’s EACH and we haven’t even started on any savings that might already exist in ISAs
As with any opportunity, it takes careful planning in order to take maximum advantage, but as you can see from the above points, you would need to have a reasonably large portfolio before you ran into any tax problems.
At Mantle Financial Planning, we take account of a number of factors when making recommendations. The preferred level of investment risk is very important as well as other factors such as personal objectives – only now we have even greater scope to improve tax efficiency.
If you would like more information on tax planning opportunities centred on your personal circumstances, please contact us >>