Take a big dividend this year?

[NeverBackToPerm]

I currently have around £220K in my company and have already taken salary and dividends up to the higher rate tax limit. I'm mulling over whether I should take out a large additional dividend to bring my annual income up to £100K and take the 25% hit because:

1. If I take it out in later years at basic rate I will pay 7.5% (and if I end up taking it out via ER I will pay 10%) so it's actually only costing me 17.5%. Plus there is a risk that the 7.5% will increase in the future.
2. With interest rates currently low having a mortgage isn't costing me much but if/when interest rates rise having the cash outside the company to pay off the mortgage becomes more attractive and I could get a better return on the cash outside the company anyway.
3. I don't have much in the way of personal savings outside the company (apart from in ISAs that I don't want to touch) and I might need to draw money out over the higher rate tax limit in future years, which would obviously cost me more than if I took it out now.

On the other hand it would be an annoying amount of tax to have to pay and future circumstances might be such that I can just keep on taking out £40K a year! Anyone else have any thoughts on this?

[northernladuk]

What did your wife say?

[NeverBackToPerm]

What did your wife say?

No wife/significant other. Not close to retirement so can't get it out quickly via pension. Accountant just says more tax efficient to keep on taking £40K a year out until close the company but that could be a long way off.

[northernladuk]

I was being a little tongue in cheek as my standard line is asking accountants but I think in this case I would be factoring a lifestyle choice in over tax efficiency.

There is more than enough money there to not have to let the tax tail wag the dog. If I had that kind of money in the business I'd be quite happily taking a tax hit to enjoy my personal life... If you've no significant other half you' best enjoy it while you can....

[Pherlopolus]

If I had your problem, I would take it out now also...

[stek]

Trouble is taking a wodge over the lower rate means you have to also pay next years tax on account as well so it's like being taxed at 80% in a way....

[jamesbrown]

Trouble is taking a wodge over the lower rate means you have to also pay next years tax on account as well so it's like being taxed at 80% in a way....

Only if you don't reduce the payment on account (i.e. because you don't plan to take a large dividend the next year). If you're wrong, you'll pay interest on the difference, of course.

[dogzilla]

If you don't need the money I'd be tempted to leave it in the business until you do need it.

[bobspud]

If you don't need it then leave it alone. IMHO. at the moment the reason everyone is fed up is because the higher rate will be 32% not 25% but if George gets his way then the higher rate threshold will go up to 50k and you will be able to take more out at the lower 7% tax threshold.

[Platypus]

I risked it and bumped by income to £100k. I didn't think about the tax on account thing. Too late now! I guess I'll get it back eventually. If my circumstances change I could live to regret it of course