Investment Income

Nick_C_4

The final word really ought to go to HMRC:

"Dividend income is currently taxed at 10% up to the basic tax limit, and at 32.5% above that."

from the HMRC website

The explanation in the link posted by Ed is hilarious - while it matches the facts, it's ridiculously complex and completely !!!!!!-about-face.

moneytroll

take it easy on Ed; he/she/it means it well - no offence to anybody. but good thing that we clarified the issue :-)

EdInvestor

As far as our standard rate taxpayer Dylon, aged 57 with 100k to invest is concerned, he should not have to pay any tax on his c.5k of dividend income from an HYP.

In 7 years time if he is earning over 20k+ he might find the divis affect his age allowance.

I am sorry but the application of a 10% tax and the simultaneous application of a 10% tax credit which results in the payment of no tax means that no tax is levied.If a tax was actually levied then a non taxpayer should be able to claim it back.But he can't, because it isn't levied.

cheerfulcat

I am sorry but the application of a 10% tax and the simultaneous application of a 10% tax credit which results in the payment of no tax means that no tax is levied.

:wall:

Ed, once and for all. There is a tax liability. That liability is partly satisfied by the dividend credit. At BRT level there is no extra tax to pay.( As you know, it was possible to claim the credit back within a tax wrapper - it is no longer, this was abolished by G Brown ). The dividends plus tax credit do not just affect age allowance, they can also push a BRT payer into the HRT bracket. It is very misleading for you to say that dividends are tax free, as they are not.

EdInvestor

CC

At BRT level there is no extra tax to pay.

You are very confused.This statement indicates that tax has already been paid, right? But NO TAX has been paid by BRTs. Leave out the word ëxtra and we can agree.

( As you know, it was possible to claim the credit back within a tax wrapper - it is no longer, this was abolished by G Brown ).

Getting even worse ( I do blame GB for this, not you BTW.)Nobody ever claimed back a tax credit, why would anyone do that ? Indeed nothing was claimed back by BRTs, because nothing was ever paid.

The tax liability is notional only.

Paul_Herring

EdInvestor wrote:

You are very confused.This statement indicates that tax has already been paid, right? But NO TAX has been paid by BRTs. Leave out the word ëxtra and we can agree.

Tax has effectively been paid by the time you receive the dividend. At 10%. And it cannot be claimed back.

From
http://www.direct.gov.uk/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/TaxOnSavingsAndInvestmentsArticles/fs/en?CONTENT_ID=4016453&chk=FuPP1L

Paying tax on dividend income


If you pay tax at or below the basic rate

You have no tax to pay on your dividend income because the tax liability is 10 per cent - the same amount as the tax credit – as shown in the tables.

If you pay tax at the higher rate

You pay a total of 32.5% tax on dividend income that falls above the basic rate Income Tax limit (£33,300 for the 2006-2007 tax year). But because the first 10 per cent of the tax due on your dividend income is already covered by the tax credit, in practice you owe only 22.5 per cent.


Note that dividend income, like savings income, is taxed based on your highest tax rate. If it falls both sides of the £33,300 higher rate tax bracket, it will be taxed partly at 10 per cent (and covered by the tax credit)and partly at 32.5 per cent (less the 10 per cent tax credit).

Dave_P161

Getting even worse ( I do blame GB for this, not you BTW.)Nobody ever claimed back a tax credit, why would anyone do that ? Indeed nothing was claimed back by BRTs, because nothing was ever paid.

The tax liability is notional only.

This is sooooo wrong. I have claimed back tax credit on my wife's behalf in the past (in the days that it was allowed, obviously). This was due her being a non-taxpayer whilst holding shares in her name. They were primarily in her name (not mine) for tax reasons, i.e to prevent me from becoming a HRT payer because of the dividend income plus associated tax credit!!

cheerfulcat

EdInvestor wrote:

You are very confused.This statement indicates that tax has already been paid, right? But NO TAX has been paid by BRTs. Leave out the word ëxtra and we can agree.

I'm confused? Ed, you really are the pink limit. Paul_Herring has kindly provided a link which perhaps you should study.

Getting even worse ( I do blame GB for this, not you BTW.)Nobody ever claimed back a tax credit, why would anyone do that ? Indeed nothing was claimed back by BRTs, because nothing was ever paid. I suggest that you get your facts right; as it is, you may be confusing and misleading people.

How long have you been an investor? Until 1999 the tax credit was repayable to non-taxpayers, and this remained the case for ISAs until 2004.