"Happily sunning myself In Italy when I read the details of the Summer budget and choked on my coffee!
As I have come to expect the detail was more complicated than the headlines. 2 things I would highlight.
All small companies which currently pay low salary and high dividends are going to have to check /amend this strategy before 6th April 2016 as the tax charge for them is going up.
Also residential landlords will have new rules to deal with, as interest relief is going to be restricted to basic rate. This combined with a transitional period will make things interesting."
Philip Eagle, Tax Director.
Summer budget the detail…
The biggest potential impact IS a new 7.5% tax rate for dividends in excess of £5,000 for basic rate tax payers and 32.5% for higher rate tax payers and 38.1% for additional rate tax payers. This means dividends become less tax efficient for most of our owner managed businesses. Extraction of income by rent interest and pensions become more tax efficient but.....
.....rental income, for buy to let properties owned by individuals, will have interest relief restricted to basic rate tax -phased in over 4 years. This will have the biggest impact on landlords with a large portfolio of properties with lots of finance. The landlords who are currently basic rate tax payers could easily become higher rate tax payers with this new rule. We will need the fine detail of how brought forward losses are used as it could be that the finance charges will be disallowed, so using up losses brought forward.