The new tax on dividends…..will George Osborne regret it.

August 24, 2015

I remember Gordon Brown’s 21 March 2007 budget.  This was when, to astonishment from pretty much everyone outside the treasury, he reduced income tax to 20% (it has remained this level for 9 years).

I remember the front pages lauding him and praising his tax cut.  It was bizarre to me at the time because with my sturdy calculator, I could see that he had cut income tax whilst abolishing the 10% tax rate band.

This meant that it wasn’t going to be the low paid that would benefit from the tax cut, it would be the people earning over £20,000.  The people on lower income would see their tax rise.

Even now, I’m amazed that nobody around Gordon Brown at the time, pointed this out since Gordon was many things but he definitely had concern for the poor.

Sure enough, a full 13 months later, at the end of April 2008 – with Gordon Brown now as prime minister, the pay-slips hit the envelopes and as they were opened to the shock of many, their net pay had plummeted – 10% tax band vanquished.

The backlash was so bad, that Alistair Darling (the chancellor at the time) had to do a speedy U-turn and reinstate the 10% band.

I can’t help thinking that something similar may happen to George Osborne with the new dividend tax regime.

George Osborne had done two things with the tax on dividends.  Firstly, he has made it simpler and secondly, he has hiked the tax on it.

The tax doesn’t come into play until April 2016 which means that the tax won’t be paid until, potentially July 2016 or possibly as late as January 2018, depending on taxpayers circumstances.  However, it could be a ticking time bomb as many will get a big tax bill that they may not have appreciated is coming.

For further details on the actual numbers on the new dividend tax rates – see my next blog.

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