Double Taxation and Broken Promises

PRESS RELEASE 91 21/03/2017

The most recent changes to dividend taxation in the Chancellors Spring Budget are a major attack on private investors. The simple change to reduce the Dividend Tax Allowance from £5,000 to £2,000 only a year after it was introduced will have a big impact on the tax paid by many investors. It’s also another example of a broken promise about “no increases in taxes” made in the Conservative manifesto.

The Chancellor, Philip Hammond, has already had to back-track on the increases to National Insurance over the broken promise. Perhaps he should reconsider the above changes also.

Let’s go back eighteen months when his predecessor George Osborne issued his last budget. That scrapped the dividend tax credit system and introduced the Dividend Tax Allowance. This is what a ShareSoc Director said at the time about that:

“Dividend tax change. Few people understand the dividend tax credit system so this might be seen as a worthwhile simplification, but it will increase the Government’s tax take, particularly from wealthy investors, very substantially. For example it is forecast to raise over a billion pounds per year in tax!

The original reason for dividend tax credits was to avoid double taxation on the same profits. When both corporation tax and personal tax rates were high, profits made by a company could effectively be taxed twice – once within the company by corporation tax and then when the profits were distributed in dividends. It could result in very high combined rates. The new £5,000 allowance will mean the vast majority of individuals who receive dividends will not be adversely affected. However, those with substantial dividend income will be.”

Tax rates are now lower, particularly corporation tax, but we still have the iniquity of double taxation.

The latest reduction in the Dividend Tax Allowance to £2,000 will mean some investors are now an additional £1,000 worse off than under Osborne’s changes.

For example someone who has invested in equities for their retirement so as to obtain a decent level of income, may be as much as £5,000 worse off because of these changes.

What did the Conservatives say in the 2015 Manifesto (which you can read here: https://www.conservatives.com/manifesto)? It says on page 27 that “A Conservative Government will not increase the rates of VAT, Income Tax or National Insurance in the next Parliament”. Most people will have read that to mean that they will not be paying more Income Tax or National Insurance. Hence the complaints from the self-employed concerning changes to the latter. But the impact of these changes to dividend taxes are even more damaging to those living on dividend income in retirement.

Obviously the way we are headed is for the Dividend Tax Allowance to be scrapped altogether and dividend income is clearly now a target for more tax raising from the Chancellor.

Regrettably these changes without prior consultation make it exceedingly difficult for individuals to plan ahead for retirement. Continual changes to tax rates and allowances tend to defeat sensible planning. The Chancellor apparently thinks this will help to discourage incorporation for small businesses, and considers it “an extremely generous tax break” for wealthy investors. But he is ignoring the fact that profits out of which dividends are paid have already been taxed.

ShareSoc is urging its Members to complain to their Members of Parliament about this change. You can write to your M.P. by post or email and you can obtain their contact details from this web page: http://parliament.uk (enter your post code at the bottom left). This takes you to a page giving their name, postal address and email address – an email will do fine.

More Details

The cut to the dividend allowance will potentially cost basic-rate taxpayers £225, higher rate taxpayers £975 and additional rate taxpayers £1,143 per year (source: Financial Times). It will raise £825 million per year for the exchequer.

For further information please contact:

Roger Lawson

Deputy Chairman, ShareSoc

Telephone: 020-8295-0378

Post Date: March 21, 2017

Group description:	Our group is interested in sustainable investing and our goal is to identify and evaluate businesses that will thrive through innovation and their transition to a ‘One Planet Economy’. By leveraging the skills of group members, we aim to deeply understand these businesses, particularly focusing on how they develop long-term valuable benefits for their customers. Each year, we plan to evaluate around seven businesses to identify opportunities where our valuation exceeds the market price. A successful outcome is defined as achieving a compound annual growth rate (CAGR), including dividends, of 10% over a decade.
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Meeting Frequency/Timing:	Meetings are bi-monthly on a Monday from 10:45am to 4:30pm. Members are expected to also pay for their own lunch which secures the group free use of a private room in the pub. The cost is expected to be £35-40 per person, per meeting, in addition to your SIGnet membership fee.

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Open to all investors / people with an interest in investing. Typical meeting will involve members talking about recent purchases, successes, failures and possible future purchases. Also with occasional visiting speakers or members making presentations on a topic of interest.
Meeting Type/Venue:	We aim to meet on the last Tuesday of each month in a private room at a pub in Playhatch. Start time 7pm with members encouraged to meet up around 6pm for a bite to eat / drink before hand, if their diaries allow.
Meeting Frequency/Timing:	7pm on the last Tuesday of the month. Meetings likely to last about two hours but with informal ‘overspill’ before / after.

Group description:	Group focused on active investing, primarily in small / medium cap UK equities.
Meeting Type/Venue:	Regular Zoom meetings interspersed with occasional face to face meetings and social activities in the North West.
Meeting Frequency/Timing:	Monthly on Saturdays at 10am.

Double Taxation and Broken Promises

PRESS RELEASE 91 21/03/2017

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