In my editor's letter this week, I wrote about the huge rise in the tax burden on the rich over the last decade. They've seen the top income tax rate move to 47%. They've lost their personal allowances. They've lost their right to child benefit. They've had their pension savings capped by the horrible Life Time Allowance and the fall in the annual pension allowance (which is now going down to £10,000 for those earning £210,000).
They've seen stamp duty charges on their houses soar, and if they are a non-dom, they've been hit with the fast-rising remittance change on cash they bring into the UK. And there is more to come all non-dom tax advantages are soon to be removed, and in a move that will end up affecting a couple of hundred thousand people, tax relief on the interest part of buy-to-let mortgages is about to be slashed. There's been a lot of complaint in the media that the rich aren't being hit up for the deficit in the same way as the poor. But it isn't really so.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, several people wrote in to point out that even my long list of taxes on the well-off was not complete. I had missed out the new dividend tax. From April 2016, the notional 10% tax credit on dividends will be abolished. This is the good news it was a statistical nonsense anyway. The bad news is that after a £5,000 tax-free allowance, there will now be some new tax rates. Lower-rate taxpayers will pay another 7.5% on dividend income. Higher-rate taxpayers will pay another 32.5%, and additional rate payers will have to come up with 38.1%.
There are some good worked examples here,but the upshot is simple: some will save a little tax (higher-rate taxpayers with a dividend income under £5,000), but an awful lot of tax bills are going rise hugely. That's particularly the case for those who are currently avoiding income tax and national insurance (NI) by paying themselves in dividends via companies (it is very common for people to set up companies to pay themselves a salary just big enough to ensure they qualify for the state pension, and then to take the rest of their income in low-tax dividends).
One example: if you currently own a company and pay yourself £8,000 in salary and £50,000 in dividends, your tax bill in 2016/17 will be £2,800 higher than it would have been under the old regime. Something for those who are thinking of avoiding the changes to buy-to-let taxation by shifting their houses into companies to think about before they make any moves.
-
Government sells another £1bn in NatWest shares as full privatisation edges closerThe UK Treasury's stake in NatWest has fallen to just over 11% - here is what it means for the share price
-
Why the MoneyWeek ETF portfolio won't need to changeOur long-running ETF strategy won’t be placing any bets yet about what Donald Trump will do in his new term
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
