Lowes Magazine Issue 128

TAX

Dividend allowance cut creates more tax-payers

Claiming grandparents’ NI credits Working parents struggling to find affordable childcare often turn to grandparents to help care for their grandchildren. Any grandparents under state pension age that look after their grandchildren on a regular basis can apply for National Insurance (NI) credits, helping them qualify for a full state pension. Gaining valuable pension credits will boost their future retirement income. Adult childcare credits can be backdated until 6 April 2011 and the Government encourages everyone who is eligible to apply. At least 10 years’ worth of NI credits are needed to qualify for the state pension, with 35 years’ worth of credit needed to get it in full. Missing a year of NI contributions will result in a loss of 1/35th of the full rate state pension. Currently, that's equivalent to £5.82 a week or £304 a year. Claiming credits involves working parents giving up the Child Benefit credits they receive and donating them to the grandparents, but grandparents and parents must apply for them to be transferred. Lowes pension tracing service Finding a lost pension could not only make a big difference to your overall wealth but it could also give you the potential to retire earlier than you expected. To find out more about our service, please email Marketing@Lowes.co.uk or contact us on 0191 281 8811 .

More investors and company directors are being dragged into the tax net by the cut to the dividend allowance. In November 2022, the Chancellor announced that the tax free allowance for dividend income would be cut from £2,000 to £1,000, with a further reduction to £500 to be introduced in April 2024. According to HMRC’s figures, the Government is expected to take £17.6 billion from investors and company directors in the 2023-24 tax year, an uptick of more than £2 billion from the previous year. In addition, Government estimates for the dividend tax in 2022-23 have increased from £14.4 billion to £15.8 billion – providing an additional £1.4 billion for Government coffers. For any dividends over this allowance, basic rate tax payers will be charged 8.75%, higher rate 33.75% and additional rate 39.35%. The combination of the additional-rate threshold being lowered to £125,140, and the dividend tax allowance being cut, means far more people are facing tax on their dividends up to the highest rate of 39.5%. More people will be drawn into the dividend tax net in April 2024, when the allowance is cut again to £500, which could now affect those receiving modest dividend payments. Anyone brought into paying dividend tax is required to fill in a self-assessment tax return, many for the first time. The changes to the tax regime which has seen the raising of dividend tax rates, a reduction in the tax-free allowance and changes to the additional rate threshold, will have led to higher tax bills for many. If this is an issue for you, there are tax-efficient methods to help. Lowes Advisers can discuss your circumstances to see if and where they may apply.

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