For many, property investment is part of their financial planning. Enable’s IFA’s in Bishop’s Stortford can help you plan for property tax. Recently it has been suggested that in some cases in the UK landlords that operate their buy to let business as a limited company is paying more dividend tax.
The taxation of properties has changed radically over the last couple of years and so the Office for Tax Simplification (OTS) might sound like a good idea for landlords but some of their proposals could increase the amount of dividend tax paid by landlords.
Commercial Trust Limited a specialist broker suggests new recommendations from the OTS that acknowledged that tax paid on dividend income is materially less than other sources of income. At the moment, basic rate taxpayers pay 7.5% tax on dividend income they receive, which exceeds the current £2,000 allowance. Higher rate taxpayers pay 32.5%, while additional rate taxpayers pay 38.1%.
The OTS describes tax calculations on dividends as ‘complex’ and, among its ideas, is one to tax dividends at the same rate as income. ‘A more radical option would be to end the differential tax rates for dividend income. If all taxable income was taxed at the same rates, it would not matter how the personal allowance was used,’ the OTS report says.
‘Making this change would have the effect of increasing the amount of tax due from those who receive amounts of dividend income above the allowance. It would also impact on the taxation of profit extracted as a salary or as a dividend, from family-owned companies,’ it adds.
If the Government was to make this change, landlords who are basic rate taxpayers, could see the amount of dividend tax they pay on their limited company properties increase to 20%, a rise of 125%, while for higher rate taxpayers, the increase would be 7.5% and for those in the highest rate tax band, there would be a 6.9% tax increase.
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