Share dividend income

chucknorris

I've some money in FTSE trackers (FTSE 100 and the allshare) but wondered if I am missing a trick on trying to earn more share dividend income, as it seems as a 40% tax payer there may advantages.

Does anyone have any views or strategies they might like to share?

le_loup

Put it in an ISA?

chucknorris

le_loup wrote: »

Put it in an ISA?

Thanks, but I am already max'd out on my isa allowance I was thinking about a bit more than that. I am particularly interested in:

The difference (if any) between dividend income from trackers and individual shares
Is dividend income a good tax efficient source of income for a high arte tax payer
Any advantage in holding shares for dividend income over the long run

CLAPTON

dividends from trackers/UT/OEIC etc are taxed the same way as dividends from individual shares

crimsonfin

ISA's seem to be the best way to go. From direct.gov site ....

"if you're a basic rate taxpayer inside or outside an ISA you pay tax at 10 per cent on dividend income; this is taken as a 'tax credit' before you receive the dividend and cannot be refunded for ISA investments

if you're a higher or additional rate taxpayer you would normally pay tax on dividend income at 32.5 per cent or 42.5 per cent; in an ISA you won't get back the 10 per cent dividend tax credit element of this, but you will save by not having to pay any further tax

Capital Gains Tax savings:
If you make gains of more than £10,600 from the sale of shares and certain other assets in the tax year 2011-12 you would normally have to pay Capital Gains Tax. However, you do not have to pay any Capital Gains Tax on gains from an ISA. (But losses on ISA investments can't be used to reduce Capital Gains Tax on gains from investments outside the ISA.)"



if you have a cash portion in your ISA maybe switch it to shares for max savings and then use the cash to buy NS&I bond ?

chucknorris

CLAPTON wrote: »

dividends from trackers/UT/OEIC etc are taxed the same way as dividends from individual shares

Yes I know but do the fund managers tend to give the full value of the declared dividends or not?

chucknorris

crimsonfin wrote: »

ISA's seem to be the best way to go. From direct.gov site ....

"if you're a basic rate taxpayer inside or outside an ISA you pay tax at 10 per cent on dividend income; this is taken as a 'tax credit' before you receive the dividend and cannot be refunded for ISA investments

if you're a higher or additional rate taxpayer you would normally pay tax on dividend income at 32.5 per cent or 42.5 per cent; in an ISA you won't get back the 10 per cent dividend tax credit element of this, but you will save by not having to pay any further tax

Capital Gains Tax savings:
If you make gains of more than £10,600 from the sale of shares and certain other assets in the tax year 2011-12 you would normally have to pay Capital Gains Tax. However, you do not have to pay any Capital Gains Tax on gains from an ISA. (But losses on ISA investments can't be used to reduce Capital Gains Tax on gains from investments outside the ISA.)"



if you have a cash portion in your ISA maybe switch it to shares for max savings and then use the cash to buy NS&I bond ?

I am max'd out on my isa's I am talking about quite a bit over the max amount that you can put in an isa. I have and always will use my full isa allowance.

ermine

dividend income a good tax efficient source of income for a high arte tax payer
Any advantage in holding shares for dividend income over the long run

Only inside an ISA, otherwise you should really declare your dividend income to the tax-man and pay the extra tax on it

The general philosphy seems to be if you want to invest more than your ISA allowance and are a HRT-payer then invest for income inside your ISA and invest for growth outside. The reason is you don't have to declare the dividend income from the ISA or pay more tax on it, and you can use your capital gains tax allowance of about 10k on the investments outside, crystallising the capital gains to the tune of 10k-ish a year.

jimjames

If anything as a higher rate tax payer you may be better avoiding shares or funds that pay dividends and going for growth instead so you are not taxed. With growth you have your annual CGT limits that you can offset any gains against.

Some investments (split capital investment trusts in particular) were designed in such a way that those wanting income got it but with less growth and those wanting capital growth got it but no income. Winners all round until some trusts tried to overdo it crashed the sector when the downturn struck.

wotsthat

Chuck, can't you buy accumulation units in trackers instead of income units?

Dividends would be reflected in the share price i.e. capital gain rather than income.

xrjtg

wotsthat wrote: »

Chuck, can't you buy accumulation units in trackers instead of income units?

Dividends would be reflected in the share price i.e. capital gain rather than income.

The dividends are reinvested net of income tax, and higher rate taxpayers would still have the extra tax to pay.

The main advantage of accumulation units is that you don't repeatedly have to make small, potentially expensive purchases to get dividends reinvested.