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Mechanics of new £5000 dividend allowance.

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  • talexuser
    talexuser Posts: 3,503 Forumite
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    Lakeuk wrote: »
    just go with the flow if you go over £5k you just pay the tax owed at the end of the tax year

    You are right, I was sort of using the limit as an example. However I think that if you can use the given allowances to just avoid going into the higher rate tax band, that is perfectly ok.

    It's not exactly forming shell companies in the Cayman islands and inventing invoices for dubious transfers of services to avoid any tax at all... :-)
  • martinsurrey
    martinsurrey Posts: 3,368 Forumite
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    one thing that is often overlooked on this subject is that although the £5k is "tax free" it is taxable income.

    what this means is that if you are earning £49k and get £5k dividends, although you pay no tax on the dividends, you can say goodbye to a large chunk of any child benefit you get.

    And similarly, if you earn £105k and get £5k dividends, you pay no tax on the dividend, but you lose £2500 of personal allowance, and pay £1000 more tax on your income, giving a marginal rate of tax on dividends of 20%

    https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet
  • C_Mababejive
    C_Mababejive Posts: 11,661 Forumite
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    one thing that is often overlooked on this subject is that although the £5k is "tax free" it is taxable income.

    what this means is that if you are earning £49k and get £5k dividends, although you pay no tax on the dividends, you can say goodbye to a large chunk of any child benefit you get.

    And similarly, if you earn £105k and get £5k dividends, you pay no tax on the dividend, but you lose £2500 of personal allowance, and pay £1000 more tax on your income, giving a marginal rate of tax on dividends of 20%

    https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet

    Yes,i had almost forgotten that also and im sure im not alone,,,

    So as an example..

    In the forthcoming tax year 2016>2017

    Basic rate taxpayers

    Personal allowance will be £10,800
    Basic rate limit £31,900

    Total=£42,700

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413970/TIIN_4168_income_tax_personal_allowances_and_basic_rate_limit.pdf

    So if your earnings via PAYE for example are £42,700 and above and you happen to also make 5k in divis would you pay more tax?

    What would happen in the same example if you made 10k divis?
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
  • talexuser
    talexuser Posts: 3,503 Forumite
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    edited 5 January 2016 at 8:39PM
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    For 2016/17 it's £11000 and £32000, so that gives £43000 for basic rate.

    If your gross non-dividend income is 43k and you have 5k of dividends I believe you pay no extra tax because the 5k allowance is in the higher rate band. If you had 10k of dividends you would pay tax on the extra 5k at 32.5% in the higher rate band? Hit - £1625?
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