Tax on Dividends

klaus

Not sure where this thread goes.
I have a new limited co. and I have a question regarding tax on dividends. It is very basic and probably silly but I'd be thankful for any info.

There is a tax break on dividends below £32.010 is that tax break per shareholder or is that applied to the dividend as a whole before being split amongst shareholders?

Thanks in advance.

Lokolo

There isn't a tax break for dividends. The tax you pay is based on your total earned income, just like income tax.

http://www.hmrc.gov.uk/taxon/uk.htm

xylophone

http://www.taxattack.co.uk/understandingdividends.php
Does this help?

klaus

Sorry my bad, it's a tax credit not break, but you don't pay the 10% on dividends on the first band up to 32k isn't it?

Lokolo wrote: »

There isn't a tax break for dividends. The tax you pay is based on your total earned income, just like income tax.

http://www.hmrc.gov.uk/taxon/uk.htm

klaus

Thanks for the links, to rephrase the question, if a company gives off a dividend of 60k divided between 2 shareholders, 30k each . Each of the shareholders will be subject to the lower band of dividends, or will the whole 60k incur in a higher band tax? (sorry If I'm not making sense)

westy22

The annual dividend allowance is per individual so each person receiving dividends has the full allowance open to them each year.

If an individual has £30,000 net dividends received then that is grossed up to £33,333.33 (1/9th added on) - they are then assessed as taxed on £33,333.33 but then the £3,333.33 is credited back against the assessed tax due i.e. no further tax to pay - all ridiculously complicated but that's HMRC for you!

Lokolo

klaus wrote: »

Thanks for the links, to rephrase the question, if a company gives off a dividend of 60k divided between 2 shareholders, 30k each . Each of the shareholders will be subject to the lower band of dividends, or will the whole 60k incur in a higher band tax? (sorry If I'm not making sense)

It will depend on other income.

Dividend tax is effectly paid at your income tax rate. So you can be a 20% tax payer, 40% or 50%. Depending which one of those you are will determine how much tax is paid on dividends.

Dividend tax rates are based on Income Tax Thresholds. Income tax thresholds are based on both Income, Savings Interest, Dividends etc.

klaus

Ok thanks, I think that answers it, cheers.

westy22 wrote: »

The annual dividend allowance is per individual so each person receiving dividends has the full allowance open to them each year.

If an individual has £30,000 net dividends received then that is grossed up to £33,333.33 (1/9th added on) - they are then assessed as taxed on £33,333.33 but then the £3,333.33 is credited back against the assessed tax due i.e. no further tax to pay - all ridiculously complicated but that's HMRC for you!

klaus

Thanks Lokolo but I don't get that , according to hmrc div tax is at 10% or 32.5% on the next band, how does that mix up with the 20%40%50% of income tax? Isn't income tax paid on salary, not on dividends?

Lokolo wrote: »

It will depend on other income.

Dividend tax is effectly paid at your income tax rate. So you can be a 20% tax payer, 40% or 50%. Depending which one of those you are will determine how much tax is paid on dividends.

Dividend tax rates are based on Income Tax Thresholds. Income tax thresholds are based on both Income, Savings Interest, Dividends etc.

Lokolo

klaus wrote: »

Thanks Lokolo but I don't get that , according to hmrc div tax is at 10% or 32.5% on the next band, how does that mix up with the 20%40%50% of income tax? Isn't income tax paid on salary, not on dividends?

The % tax rates are different for the different sources (income tax or dividend tax), but the bands are the same and combined.

So if you have a high paying job where you pay 40% tax on your income, the dividends you get will be at the 32.5% rate (which is the equivalent band 'Higher Rate'), even if they are say, £5k.

CLAPTON

for example
if some-one has earned income of 25,000 and then has dividends of 30,000 net (33,333 gross) and the 40% tax band is 41,450

then they pay 32.5% tax on

58,333 - 41,450