Dividends in Self Select ISAs and PEPs

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
5 replies 874 views
PollycatPollycat Forumite
31.4K Posts
Part of the Furniture 10,000 Posts Name Dropper Savvy Shopper!
✭✭✭✭✭
edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
In the same way you would check your bank and credit card statements for errors, please do the same with your Self Select ISAs and PEPs.
An example of why.
My PEP was credited with a dividend of 24p instead of 34p for Land Securities (LAND).
A quick email to the PEP manager got the response that the dividend was 34p gross and after tax the dividend was 24p payable. A tax rate of 41%. Hmmm.
A further email pointing out this tax rate got the response that the dividend had been paid in 2 installments on two separate days. 24p one day and 10p two days later. Tax of 10% of the total 34p dividend had still been deducted.
Third email pointing out that the dividend a company declares is the dividend payable (net) caused an entry of tax reclaim for the 10% to be credited.

So the two key points here are
1 Check your statements of all financial accounts - mistakes do happen
2 Be aware that the dividend a company declares is the dividend payable after tax and only higher rate tax payers have further tax to pay if the stock is not held in tax free accounts such as PEPs and ISAs.

Replies

  • ukdutypaidukdutypaid Forumite
    338 Posts
    Pollycat wrote: »
    Third email pointing out that the dividend a company declares is the dividend payable (net)
    2 Be aware that the dividend a company declares is the dividend payable after tax and only higher rate tax payers have further tax to pay if the stock is not held in tax free accounts such as PEPs and ISAs.

    Not doubting your word, but seriously that's a bit of an eye opener.
    A) I didn't know dividends were classed as income, I thought they were capital gains
    B) I didn't know there were 2(only are there?), rates of CGT
    and
    C) That no account of your CGT allowance is taken into account and that they just deduct basic 20% income tax at source. I suppose that would be the case just like bank accounts if it's income tax though.
    D) Does that mean that you have to claim it all back at the end of the tax year. Oh again I suppose it doesn't does it, if it's not classed as CGT..

    Wow..... You can tell I'm like a lamb to the slaughter with this milarky!
    Just dipped me toe in and that's within an ISA. It being held in such means there's no tax to pay at all though? Or is that what you meant?
    I'll bear it all in mind......
    Is CGT just on share dealing then and doesn't apply to dividends?
  • jem16jem16 Forumite
    19.1K Posts
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    ✭✭✭✭✭
    ukdutypaid wrote: »
    Not doubting your word, but seriously that's a bit of an eye opener.
    A) I didn't know dividends were classed as income, I thought they were capital gains

    Definitely income.

    B) I didn't know there were 2(only are there?), rates of CGT
    and

    Any CGT due is taxable at your normal income tax rate.

    C) That no account of your CGT allowance is taken into account and that they just deduct basic 20% income tax at source. I suppose that would be the case just like bank accounts if it's income tax though.

    Dividends have nothing to do with CGT so the CGT allowance doesn't come into it. Dividends come with a notional tax credit of 10%. If you are a basic rate taxpayer there is no further liability to tax, except if you are borderline higher rate tax and the dividend PLUS 10% tax credit takes you into higher rate tax. Higher rate taxpayers have a further liability of 25% and this should be declared on your tax return.

    D) Does that mean that you have to claim it all back at the end of the tax year. Oh again I suppose it doesn't does it, if it's not classed as CGT..

    The notional tax credit cannot be reclaimed.
    Wow..... You can tell I'm like a lamb to the slaughter with this milarky!
    Just dipped me toe in and that's within an ISA. It being held in such means there's no tax to pay at all though? Or is that what you meant?
    I'll bear it all in mind......

    Dividends paid within an ISA do not have to be declared as income so no further tax is due. This is more helpful for higher rate taxpayers who would have had to pay an extra 25% tax if outwith the ISA.

    Is CGT just on share dealing then and doesn't apply to dividends?

    CGT comes about when you sell shares/funds. The gain is worked out from the difference in the price you paid and the price you sold at. So if you bought shares/funds for £3000 and sold them for £10,000 you would have a capital gain of £7000. This tax year the CGT allowance is £9200 so no tax would be payable in this example.
  • PollycatPollycat Forumite
    31.4K Posts
    Part of the Furniture 10,000 Posts Name Dropper Savvy Shopper!
    ✭✭✭✭✭
    CGT comes about when you sell shares/funds. The gain is worked out from the difference in the price you paid and the price you sold at. So if you bought shares/funds for £3000 and sold them for £10,000 you would have a capital gain of £7000. This tax year the CGT allowance is £9200 so no tax would be payable in this example.

    Just a quick point of clarification. Any profit on shares bought and sold in an ISA or PEP is exempt from CGT as well and it doesn't count towards your annual limit.
  • Nuff respekt to da ladies, in da house, for that one..

    No seriously, that has offered some fantastic clarification.
    - Dividend income is basic rate tax (unless you're a Hi Rate payer)
    - CGT on share dealing.
    - No tax payable if S&S is held within an ISA....

    Time to stop messing about in the water, for me at the moment I think.
    Let's get rid of that mortgage, first...

    Cheers ladies....
  • PollycatPollycat Forumite
    31.4K Posts
    Part of the Furniture 10,000 Posts Name Dropper Savvy Shopper!
    ✭✭✭✭✭
    ukdutypaid
    Good luck with paying off the mortgage. We're already there - and lovin' it! :j

    Polly
This discussion has been closed.
Latest MSE News and Guides

Card providers to reserve up to £100

When you pay at supermarket fuel pumps

MSE News

Cheap contents insurance for tenants

DON'T assume your landlord covers you

MSE Guides

Summer sizzlers round-up

Incl £2ish sun cream & £1.50 disposable BBQs

MSE Deals