Correct historical dividend income tax band thresholds

changelog.d/1822.fixed.md

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+- Corrected dividend income-tax band thresholds from 2016 to 2025 to use their statutory tax-year dates.

policyengine_uk/parameters/gov/hmrc/income_tax/README.md

@@ -1 +1,44 @@
 # Income Tax
+
+## Dividend bands
+
+[Income Tax Act 2007 s. 13](https://www.legislation.gov.uk/ukpga/2007/3/section/13)
+ties the dividend rates to the corresponding UK taxable-income bands, including
+when determining the dividend bands for a Scottish taxpayer.
+[Section 16](https://www.legislation.gov.uk/ukpga/2007/3/section/16) places
+dividends above other income. The dividend nil-rate amount uses band capacity;
+it does not reduce income when determining the remaining capacity in each band.
+
+The dated dividend scale records these basic-rate limits:
+
+| Tax year beginning 6 April | Basic-rate limit | Authority |
+| --- | ---: | --- |
+| 2016 | £32,000 | [Finance (No. 2) Act 2015 s. 6](https://www.legislation.gov.uk/ukpga/2015/33/section/6/enacted) |
+| 2017 | £33,500 | [Finance Act 2016 s. 2](https://www.legislation.gov.uk/ukpga/2016/24/section/2/enacted) |
+| 2018 | £34,500 | [SI 2017/1184 art 2](https://www.legislation.gov.uk/uksi/2017/1184/article/2/made) |
+| 2019 and 2020 | £37,500 | [Finance Act 2019 s. 5](https://www.legislation.gov.uk/ukpga/2019/1/section/5/enacted) |
+| From 2021 | £37,700 | [SI 2021/111 art 2](https://www.legislation.gov.uk/uksi/2021/111/article/2/made) |
+
+The additional-rate threshold falls from £150,000 to £125,140 from 6 April 2023
+under [Finance Act 2023 s. 6](https://www.legislation.gov.uk/ukpga/2023/1/section/6/enacted).
+These limits apply after allowances. For example, in 2025, £49,000 of pay uses
+£36,430 of taxable band capacity after the £12,570 Personal Allowance. Of a
+further £2,000 of dividends, £1,270 fits in the basic band, including the £500
+dividend nil-rate amount. The charge is £770 × 8.75% + £730 × 33.75% = £313.75.
+
+The threshold history does not certify the pre-2016 dividend-tax-credit regime
+or all historical allowance calculations. The inherited 2016 Personal Allowance
+is a separate issue tracked in [#2359](https://github.com/PolicyEngine/policyengine-uk/issues/2359):
+the inherited amount was £10,600 while the statutory amount is £11,000. The 2016 regression
+uses £160,000 of dividends, which naturally withdraws the full allowance under
+either amount. It exercises the dividend bands without selecting an allowance
+through an intermediate input. Dividend rates, allowance allocation, Gift Aid
+extensions and the optional extra dividend bracket retain their existing
+interfaces.
+
+The existing fixed-order allowance allocation does not always implement the
+most-beneficial allocation required by ITA 2007 s. 25(2) for mixed wages and
+dividends. The 2017, 2021 and 2026 threshold regressions also use dividend-only
+income with a naturally zero Personal Allowance. The selected 2018, 2019 and
+2025 mixed-income cases have independently checked allowance allocations;
+they do not certify the allocation formula for other situations.

policyengine_uk/parameters/gov/hmrc/income_tax/rates/dividends.yaml

@@ -55,6 +55,36 @@ brackets:
         label: Dividends higher rate threshold
       values:
         2015-04-01: 37_500
+        2016-04-06:
+          value: 32_000
+          metadata:
+            reference:
+              - title: Finance (No. 2) Act 2015 s. 6(a)
+                href: https://www.legislation.gov.uk/ukpga/2015/33/section/6/enacted
+        2017-04-06:
+          value: 33_500
+          metadata:
+            reference:
+              - title: Finance Act 2016 s. 2
+                href: https://www.legislation.gov.uk/ukpga/2016/24/section/2/enacted
+        2018-04-06:
+          value: 34_500
+          metadata:
+            reference:
+              - title: The Income Tax (Indexation) Order 2017 art 2
+                href: https://www.legislation.gov.uk/uksi/2017/1184/article/2/made
+        2019-04-06:
+          value: 37_500
+          metadata:
+            reference:
+              - title: Finance Act 2019 s. 5(1)
+                href: https://www.legislation.gov.uk/ukpga/2019/1/section/5/enacted
+        2021-04-06:
+          value: 37_700
+          metadata:
+            reference:
+              - title: The Income Tax (Indexation) Order 2021 art 2
+                href: https://www.legislation.gov.uk/uksi/2021/111/article/2/made
         2026-04-06:
           value: 37_700
           metadata:
@@ -79,6 +109,12 @@ brackets:
     threshold:
       values:
         2015-04-01: 150_000
+        2023-04-06:
+          value: 125_140
+          metadata:
+            reference:
+              - title: Finance Act 2023 s. 6(3)-(4)
+                href: https://www.legislation.gov.uk/ukpga/2023/1/section/6/enacted
         2026-04-06:
           value: 125_140
           metadata:

policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/dividend_band_dates.yaml

@@ -0,0 +1,101 @@
+# Literal official-source band arithmetic; the dividend nil rate occupies band capacity.
+# PA0 cases isolate2016/2017/2021/2026 bands from separate allowance limitations.
+- name: 2016 dividends with wages 0 and dividends 160000
+  period: 2016
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 0
+    dividend_income: 160000
+  output:
+    dividend_income_tax: 44185.0
+    income_tax: 44185.0
+- name: 2017 dividends with wages 0 and dividends 160000
+  period: 2017
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 0
+    dividend_income: 160000
+  output:
+    dividend_income_tax: 43810.0
+    income_tax: 43810.0
+- name: 2018 dividends with wages 40000 and dividends 10000
+  period: 2018
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 40000
+    dividend_income: 10000
+  output:
+    dividend_income_tax: 1512.5
+    income_tax: 7142.5
+- name: 2019 dividends with wages 40000 and dividends 10000
+  period: 2019
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 40000
+    dividend_income: 10000
+  output:
+    dividend_income_tax: 600.0
+    income_tax: 6100.0
+- name: 2021 dividends with wages 0 and dividends 160000
+  period: 2021
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 0
+    dividend_income: 160000
+  output:
+    dividend_income_tax: 42985.0
+    income_tax: 42985.0
+- name: 2023 dividends with wages 130000 and dividends 10000
+  period: 2023
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 130000
+    dividend_income: 10000
+  output:
+    dividend_income_tax: 3541.5
+    income_tax: 48244.5
+- name: 2025 dividends with wages 49000 and dividends 2000
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 49000
+    dividend_income: 2000
+  output:
+    dividend_income_tax: 313.75
+    income_tax: 7599.75
+- name: 2025 dividends with wages 130000 and dividends 10000
+  period: 2025
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 130000
+    dividend_income: 10000
+  output:
+    dividend_income_tax: 3738.25
+    income_tax: 48441.25
+- name: 2026 dividends with wages 0 and dividends 160000
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    region: LONDON
+    employment_income: 0
+    dividend_income: 160000
+  output:
+    dividend_income_tax: 48976.21
+    income_tax: 48976.21

policyengine_uk/tests/test_dividend_band_dates.py

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+"""Dated dividend limits and preserved rate/reform interfaces.
+
+ITA 2007 s.13 uses the corresponding UK taxable-income bands. Earlier
+unchanged values below are regression controls, not a pre-2016 law audit.
+"""
+
+from pathlib import Path
+
+import pytest
+import yaml
+from policyengine_core.parameters import Parameter
+
+import policyengine_uk
+from policyengine_uk import CountryTaxBenefitSystem
+
+PATH = "gov.hmrc.income_tax.rates.dividends"
+FILE = (
+    Path(policyengine_uk.__file__).parent
+    / "parameters/gov/hmrc/income_tax/rates/dividends.yaml"
+)
+
+
+@pytest.mark.parametrize(
+    "bracket,before,after,old,new",
+    [
+        (1, "2016-04-05", "2016-04-06", 37_500, 32_000),
+        (1, "2017-04-05", "2017-04-06", 32_000, 33_500),
+        (1, "2018-04-05", "2018-04-06", 33_500, 34_500),
+        (1, "2019-04-05", "2019-04-06", 34_500, 37_500),
+        (1, "2021-04-05", "2021-04-06", 37_500, 37_700),
+        (2, "2023-04-05", "2023-04-06", 150_000, 125_140),
+    ],
+)
+def test_raw_dividend_limits_change_on_the_statutory_tax_year_date(
+    bracket, before, after, old, new
+):
+    data = yaml.safe_load(FILE.read_text())["brackets"][bracket]["threshold"]
+    data["values"] = {str(date): value for date, value in data["values"].items()}
+    raw = Parameter(f"{PATH}[{bracket}].threshold", data=data, file_path=str(FILE))
+    assert raw(before) == old
+    assert raw(after) == new
+
+
+@pytest.fixture(scope="module")
+def system():
+    return CountryTaxBenefitSystem()
+
+
+@pytest.mark.parametrize(
+    "year,basic_limit,additional_limit",
+    [
+        (2016, 32_000, 150_000),
+        (2017, 33_500, 150_000),
+        (2018, 34_500, 150_000),
+        (2019, 37_500, 150_000),
+        (2020, 37_500, 150_000),
+        (2021, 37_700, 150_000),
+        (2023, 37_700, 125_140),
+        (2025, 37_700, 125_140),
+        (2026, 37_700, 125_140),
+    ],
+)
+def test_annual_dividend_limits_include_restoration_and_current_years(
+    system, year, basic_limit, additional_limit
+):
+    scale = system.parameters.get_child(PATH)(f"{year}-01-01")
+    assert scale.thresholds == [0, basic_limit, additional_limit, 10_000_000]
+
+
+def test_2026_dividend_rates_and_optional_extra_bracket_are_unchanged(system):
+    scale = system.parameters.get_child(PATH)("2026-01-01")
+    assert scale.rates == [0.1075, 0.3575, 0.3935, 0.3935]
+    assert scale.thresholds == [0, 37_700, 125_140, 10_000_000]