bed & isa

00ec25

Baz wrote: »

You don't pay tax on dividends if you are a basic rate tax payer on shares either in or out of an ISA. So by default it can only benefit higher rate tax payers as they are the only ones who actually pay tax on dividends anyway.

agree that only higher rate tax payers will have to physically pay extra tax in cash but your wording is a bit loose,
a basic rate taxpayer most certainly does pay tax on dividends, however it is deducted at source and so in reality the receipient does not have to "pay" the tax in cash - all UK dividends have a tax credit shown on the tax certficate you get and as you say a basic rate taxpayer cannot reclaim this tax which has already been deducted even if held within an ISA

Lokolo

The 10% dividend rate isn't applied to shareholders, but to the business giving out the dividend I believe. Well this is the best way to think about it anyway.

Baz_2

00ec25 wrote: »

agree that only higher rate tax payers will have to physically pay extra tax in cash but your wording is a bit loose,
a basic rate taxpayer most certainly does pay tax on dividends, however it is deducted at source and so in reality the receipient does not have to "pay" the tax in cash - all UK dividends have a tax credit shown on the tax certficate you get and as you say a basic rate taxpayer cannot reclaim this tax which has already been deducted even if held within an ISA

Nobody pays the tax and nothing is deducted from the dividend, your dividend is increased by the tax credit and then reduced by the 10% dividend tax rate. Result is no tax.

So basic rate tax payers don't suffer any tax at all on dividends.

Higher rate tax payers suffer tax at 25% on their dividends.