I suspect that this is very UK-specific with the combination of relatively low corporate tax rate and that in practice, they also tax most of your dividend income at a dramatically lower rate (unlike in your example).
In Australia, for example, our corporate tax rate is 25% (on small biz, 30% over $50M turnover)
Our income brackets are:
$0 to $18.2K nothing
$18.2K to $45K 19%
$45K to $120K 32.5%
$120K to $180K 37.5%
$180K+. 45%
plus a 2.5% Medicare levy on top, for all above $18.2K (which is often waived for low income, so typically kicks in around $70K depending on family)
The USA has their vastly more-complicated and punitive system with no tax-free threshold & many states adding income tax on top of the rates 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The concept still applies. For example, in Australia you might set a target of $45k. A couple running a family business could then extract $90k fairly tax efficiently it seems.
I suspect that this is very UK-specific with the combination of relatively low corporate tax rate and that in practice, they also tax most of your dividend income at a dramatically lower rate (unlike in your example).
In Australia, for example, our corporate tax rate is 25% (on small biz, 30% over $50M turnover)
Our income brackets are:
$0 to $18.2K nothing
$18.2K to $45K 19%
$45K to $120K 32.5%
$120K to $180K 37.5%
$180K+. 45%
plus a 2.5% Medicare levy on top, for all above $18.2K (which is often waived for low income, so typically kicks in around $70K depending on family)
The USA has their vastly more-complicated and punitive system with no tax-free threshold & many states adding income tax on top of the rates 10%, 12%, 22%, 24%, 32%, 35% and 37%.
https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
Trump cut their federal corporate rate from 35% to 21% but you have to add in state taxes ranging from 0 to 11.5% which are sometimes weird "Gross Receipts" taxes rather than income - eg Washington State's 1% on all revenue for a services business, even if unprofitable! https://dor.wa.gov/taxes-rates/business-occupation-tax/business-occupation-tax-classifications
The concept still applies. For example, in Australia you might set a target of $45k. A couple running a family business could then extract $90k fairly tax efficiently it seems.
In the UK, the dividend rates are:
- 0% to £2k
- 8.75% to £37.7k
- 33.75% to £150k