Error on MSE Shares ISA advice page

carbonara

I'm looking to start investing soon and have noticed an contradiction on MSE's Shares ISA page.

MSE states that tax on dividends is payed at 10%, regardless of what rate of income tax you pay, whether the money is on an ISA or not. The government's own website contradicts this stating that basic rate tax payers pay an "effective" tax rate of 0%. Am I missing something here? Something to do with it stating an "effective tax rate"?

Is this an error on the MSE site or could someone clarify what this actually means please?

Lokolo

Dividends have tax credit of 10% applied to them at source. You don't have a choice in the matter. Although it is being scrapped soon.

http://www.hl.co.uk/news/articles/budget-2015-changes-to-dividend-tax-explained

masonic

MSE is wrong to state that anyone pays 10% tax on dividends. However, I don't think they state that the same rate is paid regardless of what rate of income tax you pay, whether the money is on an ISA or not (which would also be wrong).

HMRC treats dividends as if they were paid net of 10% tax (but they aren't). The effect of this is to create a 10% tax credit that higher and additional rate taxpayers can offset against the tax they pay.

This system is being scrapped at the end of this tax year, so it isn't really worth knowing about if you are planning to use an ISA for the foreseeable.

Linton

Both are correct as regards basic rate tax on dividends. Basic rate dividend tax is 10% but you get a 10% tax credit making an effective rate of 0%. For basic rate tax payers this 10% is more of an accounting game rather than reality. MSE is wrong if it says the dividend tax is 10% for higher rate tax payers, its 32.5%.

But it all changes in April so it doesnt matter much.