Questions & suggestions for Spreadsheet Phil.

As some of you may know the former (?) Tory Chancellor was / may be Philip Hammond who was also known as spreadsheet Phil as he apparently has a fondness for spreadsheets. Now regular readers will know that I have a fondness for generating income from my investments and compounding the returns. Now while I try to do this as much as possible in tax free wrappers which are generously provided by the government. Outside of those one is potentially liable for income and capital gains tax on assets held outside of these tax free wrappers.

Now until recently, income on UK Shares benefited from something called the tax credit, which basically accounted for basic rate tax and one therefore only had to pay tax on income if your income in total, after taking account of the personal allowance, exceeded the higher rate threshold. That tax credit was abolished by the previous Chancellor George Osborne, who at the time he introduced a 7.5% basic tax rate on dividends rising to 32.5% and 38.1% for higher rate and additional rate tax payers and also introduced a £5,000 dividend allowance to make up for this loss of the tax credit. This however failed to fully make up for the loss of the tax credit as this change was one of the biggest revenue raisers in his budget at that time. Since then Philip Hammond decided that this allowance was too generous and proposed to cut it to £2,000, although I note that the legislation required to get this change into law was not passed before the election. I have however seen comments to suggest that this will be forthcoming post the election, assuming the Tories are returned.

As the legislation is likely to be passed (as discussed above) the allowances and tax rates for the current tax year are as follows:

                                            Income                                           Capital
Tax Free Allowance  £5,000 (going to £2,000)        £11,300
Basic Rate                            7.5%                                             10% (18% on residential property - why?)
Higher Rate                        32.5%                                           20% (28% on residential property)
Additional Rate                38.1%                                          20% (28% on residential property)

My question to Philip Hammond, or whoever is the next Chancellor, is why is investment income on shares treated & taxed differently and unfavourably compared with Capital Gains on share investments?

Supplementary question - I presume the higher capital gains tax on residential property is designed to discourage buy to let landlords? This has in fact encouraged some to register as a business instead, but that's another story.

So in conclusion my suggestion would be why not align these allowances and rates for the sake of simplicity and for equal treatment of capital & income? Now in my mind that would mean giving a £11,300 dividend income (& maybe include residential property income within this) and align the tax rates at 10% & 20%. This might go some way to replacing the loss of the tax credit & greatly simplify the current messy system they have introduced. No doubt they won't like that as it will probably cost them money. Alternatively I guess there would be a risk they could bring the Capital Gains Tax allowance down to the level of the income allowance to raise more money perhaps? Therefore not sure I'll send this idea to Spreadsheet Phil, strong and stable Theresa or my local Tory MP.