A. Rob Pullen, personal tax manager at chartered accountants Blick Rothenberg, replies: Assuming you have used your personal allowance, from April 2016, a basic-rate taxpayer receiving £6,000 of dividend income would suffer a tax charge of £75 (£1,000 at 7.5 per cent).
Genuine gifts of assets between spouses and civil partners are not liable to capital gains tax so, providing the shares transferred are genuinely gifted to your wife (with no strings attached), such that she can do with the shares as she chooses, she would be taxed on the income arising from the gifted shares according to her own tax position. If she has not already used the dividend tax allowance of £5,000, this would therefore be available to offset the dividend income she receives.
Q. My friends and I have read several articles on the topic of how dividends are to be treated following the recent Budget, but we still have questions. They are: will future dividend vouchers just show a gross dividend and if one adds up these gross dividends, are there any extra adjustments needed to arrive at the total gross dividends? What are the new tax bands starting with £5,000 and what are the rates for each tax band compared with the old rates? Some papers have indicated that all bands are increased by 7.5 per cent – is this correct? What income is classed as savings income to qualify for the £1,000 allowance? Mr M Beavis
A. Rob Pullen replies: Yes, dividends will be taxed from April 2016 according to the amount received only. There will be no distinction between gross and net dividends. Generally, no further adjustments will be required; however, if any foreign tax is paid or withheld, this will need to be added back to get to the dividends ‘received’ figure. Any foreign tax paid or withheld should be available as a tax credit (subject to limitation in certain circumstances).
The first £5,000 of dividend income received will not suffer a tax charge, as this will be covered by the new Dividend Tax Allowance. Thereafter, any dividend income falling within the basic-rate band will be taxed at 7.5 per cent, dividend income falling into the higher rate band will be taxed at 32.5 per cent, and dividend income falling into the additional rate band at 38.1 per cent.
Effective dividend tax rates up to 5 April 2016 are 0 per cent, 25 per cent and 30.56 per cent. The changes therefore represent a 7.5 per cent tax increase. The highest dividend tax rate from April 2016 onwards will be 38.1 per cent, paid by those individuals who have taxable income in excess of £150,000.
Savings income is broadly defined and includes interest paid on bank account balances, bonds and gilts. It also includes other returns, such as accrued income, sales of some securities and some unit trust distributions. Importantly, savings income does not include dividend income and is taxed at different rates.
Eyeing Equiniti
Q. I noted with interest the arrival of registrar and broker Equiniti on to the market last week – as a customer I’m interested in buying its shares, but how do you rate its prospects? B Adams
A. Emma Powell replies: Deciding whether to back a company from its entry on to the stock market is always a challenging call, especially in such volatile markets. But the group’s chief executive, Guy Wakeley, was positive the prospects of the business would see its shares well supported. The group raised £390m in gross proceeds – the amount it hoped – with £315m coming via the market. Readers may have noted this latter figure is less than the £350m management originally said would be raised via institutional and retail investors upon flotation. However, the chief executive said Equiniti’s largest shareholder, US private equity group Advent International, wanted to increase its contribution to £75m in order to reduce dilution of its holding.
At its listing last week, the offer price was set at 165p a share and Equiniti’s total market capitalisation upon flotation was £495m.
Mr Wakeley said as well as UK institutional and retail investors buying shares, a small number of European and US investors had also bought holdings. The group said it intended to use the money raised to pay down debt and boost investment in its proprietary technology platforms.
Equiniti has three core segments, the largest of which provides administration and payment services to private and public sector pension schemes. Equiniti is also the UK’s largest share registrar by representative market capitalisation. That’s hardly surprising when you consider the group provides registration services for almost half the FTSE 100. Management said it was targeting a progressive dividend policy of 30 per cent of adjusted profit after tax. The group has a high-degree of revenue visibility and management has spotted opportunities for growth. Equiniti entered five new markets last year and management has identified 19 more it could begin trading in. However, it is worth noting management is targeting still-sizeable net debt of 3.25 times expected cash profit by the end of the year. The group should benefit from increased financial services regulation, regarding treatment of customers as well as capital adequacy, and therefore increased outsourcing. We rate Equiniti a long-term buy.
