air04 wrote:However, as the legislation states that the taxpayer may deduct the reliefs and allowances in the way which will result in the greatest reduction in the taxpayer's income tax liability, it is now beneficial to ensure the PA is not wasted on income that would otherwise be taxed at 0% under the new allowances.
Probably "Dividend allowance" is not a relief or allowance but a 0% band and so can not be allocated to the higher rate part of the dividend. Example 6 of the below
https://www.gov.uk/government/publicati ... -factsheet.
Yes, this is very interesting as it looks as though the Example 6 is wrong! It shows what happens to a higher rate taxpayer with salary £40k and dividends £9k. In the example, they allocate to tax bands like this:
PA Earnings at 0% £11,000.00
BR Tax on earnings £29,000.00 tax @20% = £5,800.00
Dividends at 0% Dividend Allowance £5,000.00
HR Tax on dividends £4,000.00 tax@32.50% = £1,300.00
Total Tax £7,100
But if you moved the £4,000 dividends that attract higher rate tax into the PA, it would look like this:
PA Earnings at 0% £7,000.00
PA Dividends at 0% £4,000.00
BR Tax on earnings £32,000.00 tax @20% = £6,400.00
HR Tax on Earnings £1,000.00 tax@40% = £400.00
Dividends at 0% Dividend Allowance £5,000.00
Total tax £6,800.
So if the statement "the legislation states that the taxpayer may deduct the reliefs and allowances in the way which will result in the greatest reduction in the taxpayer's income tax liability" by what appears to be a tax expert is correct, then Example 6 in the factsheet is incorrect. Alternatively the tax experts on the forum are incorrect, or their interpretation may have been superseded by legislation.
I have posted a question on the Tax Forum concerning this.
It will be interesting to see what the SA tax calculation does in April and whether it will be correct.
