Basic Rate Tax Payer and Share Dividends?

Eco_Miser

A dividend is paid out of profits on which the company paying has been taxed. HMRC's explanation here.
HMRC could say that that tax is nothing to do with you, and simply require you to pay a further 10% (or whatever your top tax rate is).
Instead, they credit you with having paid tax at the basic rate for dividend income, including on the tax credit, with the net effect for basic rate payers that there is no tax to pay.
Note that this is different to interest, where the tax a basic rate taxpayer is required to pay is deducted at source and sent to HMR by the payer.

Richard_DandR

It goes back to the introduction of the imputation tax system in 1973.

See the section under Advance Corporation Tax in the Wikipedia link.

http://en.wikipedia.org/wiki/United_Kingdom_corporation_tax

cashbackproblems

To be earning dividends of 37k+ you would have to be holding about 500-700k in shares in which case you wont be concerned about a few pence in tax.

xrjtg

It's not 37k of dividends, it's dividends that, when added to your other income, push you into the higher rate tax bracket.

DavidHayton

xrjtg wrote: »

It's not 37k of dividends, it's dividends that, when added to your other income, push you into the higher rate tax bracket.

Good point, though the key figure for most people is about £43k because they need to add their personal allowance onto the basic rate band before they hit higher rate tax.

I don't pay higher rate tax but I still trade within an ISA when I can. As others have said, it (shouldn't) cost any more and simplifies the paperwork with HMRC. And there is always the chance that one of my speculative punts may rocket into the stratosphere and would be subject to CGT outside the ISA.

David

zagfles

Also the HR threshold is coming down next year and I think there are plans to freeze it so even if you're not paying higher rate tax now you could be in a few years. And if you're entitled to age related tax allowances non-ISA income could reduce these. Plus for tax credits ISA income is not counted, dividends outside an ISA are.