How does a sock and share Isa work

cheerfulcat

Hi, atypical,

The whole system is complicated and confusing, as well as unfair. Before the change, a non taxpayer could have reclaimed the tax credit ( as could pension funds and PEP holders ).

Here is the Government's take on it -

50. We raised with the Chancellor the abolition of dividend tax credit repayments for non-taxpayers, which was announced in the Budget of July 1997,URL="http://www.publications.parliament.uk/pa/cm199899/cmselect/cmtreasy/325/32509.htm#note91"]91[/URL and on which the Government's final determination was announced on 10 December 1998.URL="http://www.publications.parliament.uk/pa/cm199899/cmselect/cmtreasy/325/32509.htm#note92"]92[/URL There was a debate in the House on 18 January 1999. The Chancellor told us: "Many of the people who are affected by this are getting benefits in other respects from the changes in taxation we are making and, in the case of the elderly, from some of the measures that I announced in the Budget about the winter allowance and everything else. I do appreciate there is some concern about this but we had to make a judgment on these matters".URL="http://www.publications.parliament.uk/pa/cm199899/cmselect/cmtreasy/325/32509.htm#note93"]93[/URL

atypical

Thanks cheerfulcat, the situation is indeed as odd as it sounds then.

Is the default to assume that everyone is a basic rate taxpayer and apply the 10% tax credit? If so, is a nontaxpayer expected to repay HMRC this money directly?

soulsaver

Cleaver wrote: »

I'm darned if I know.

QUOTE]
I think you may have put your foot in it......

cheerfulcat

atypical wrote: »

Thanks cheerfulcat, the situation is indeed as odd as it sounds then.

Is the default to assume that everyone is a basic rate taxpayer and apply the 10% tax credit? If so, is a nontaxpayer expected to repay HMRC this money directly?

There's no actual cash transaction here between basic rate taxpayer and HMRC ( the term " tax credit " has been made a tad more confusing with the introduction of welfare payments by the same name ), just a notional amount credited as having been paid. The shareholder receives the dividend net of 10% tax - if s/he is a BRT taxpayer, the credit is entered on the tax return and that satisfies the liability. A higher rate taxpayer has extra to pay.

In the past, a non-taxpayer could reclaim the difference between the net and gross payment of the dividend but that is no longer the case.

EdInvestor

atypical wrote: »

Am I right in concluding that you don't pay tax on dividends if you are a basic rate taxpayer?

Yes. The dividend has a 10% credit attached to it which meets the tax liability.

Here

it states that if you are a non-taxpayer you shouldn't claim the 10% tax credit. Doesn't that mean you have the odd situation of taxpayers not paying the dividend tax but non-taxpayers paying it?

No, because the 10% tax credit is a tax credit, not a tax.