Trying to understand the new Savings Allowance & the 5K Dividend Allowance

Tuftywufty

:rotfl: I've edited the £500k thanks Polymaff. I agree the terms 'tax free' & 'taxed at 0%' are confusing..... Certainly for my non finance brain!

polymaff

Tuftywufty wrote: »

:rotfl: I've edited the £500k thanks Polymaff. I agree the terms 'tax free' & 'taxed at 0%' are confusing..... Certainly for my non finance brain!

And for many in HMRC, in the finance industries - and in professional accountancy - too.

dgaf

Thank you very much for all the help and explaining it in simple terms (well as simple as it can be!).

dgaf

Eco_Miser wrote: »

Yes, but see grey gym sock's post and changes to my post.
Interest is allowed first, even if you could have otherwise allowed it against the Savings Allowance. So you can have £(11k-interest)+5k of dividends, and the £6k allowances against interest are not used. It's not quite as good as I thought it would be. Try not to have more than £5k of unwrapped dividends.

Ok I see. Rates on fixed term bonds have been dropping so when/if I renew I think the savings interest will be lower than what I ahve been receiving.

I will probably start to invest more of the money in equities to get a better return from dividends and if need be just pay the tax due. Also Isa allowance is going up to £20k next year so it will help moving more in to the Isa wrapper.

Or will go down the growth route with equities and will hopefully be able to benefit from using my annual CGT allowance.

Eco_Miser wrote: »

ETA: However the £11k Personal Allowance is taken first, and interest is allowed against this before dividends, allowing £16k of tax-free dividends only if that is your only income.

Does the above mean I can receive £16K of tax-free dividends only if this is my only income (no savings interest), or can it be £10k of tax-free dividends and £6k interest tax-free?

e.g. from my £11k Personal Allowance if I use £6k of that for savings interest first, will I be able to add the remaining £5k to the 5k 0% dividend allowance and receive the £10k dividend tax-free?

kidmugsy

dgaf wrote: »

I will probably start to invest more of the money in equities to get a better return from dividends and if need be just pay the tax due.

You could always avoid some tax on dividends by contributing to a pension and holding equities in there.

dgaf

grey_gym_sock wrote: »

if you have less than £11,000 interest, then you can get more than £5,000 dividends tax-free. in this case, a total of £16,000 is tax-free; e.g. if you have £9,000 interest, then the first £7,000 of dividends are tax-free.

From the total £16,000 which is tax-free in above example, does the interest part have to be more than the dividend; e.g. can it be £6000 interest and £10,000 of dividends tax-free?

Eco_Miser

dgaf wrote: »

Does the above mean I can receive £16K of tax-free dividends only if this is my only income (no savings interest), or can it be £10k of tax-free dividends and £6k interest tax-free?

e.g. from my £11k Personal Allowance if I use £6k of that for savings interest first, will I be able to add the remaining £5k to the 5k 0% dividend allowance and receive the £10k dividend tax-free?

You can have whatever part of your Personal Allowance is not used by earnings (nil in your case) or savings interest (£6k in your case) as tax-free dividend income (£5k in your case). Additionally, whatever your total income, you can have £5k nil-rate dividend income. (A total of £10k dividend income and 6k savings income with no tax payable in your case).
Given the above, the only way £16k of dividend income can have no tax payable, is if it is the entirety of taxable income, contrary to what I posted earlier. Sorry about that, post 3 got a bit garbled as I tried to correct it with as little change as I could.

dgaf

Eco Miser, thank you for replying to my post and taking the time to explain it, appreciate the help.

polymaff

dgaf wrote: »

Does the above mean I can receive £16K of tax-free dividends only if this is my only income (no savings interest), or can it be £10k of tax-free dividends and £6k interest tax-free?

e.g. from my £11k Personal Allowance if I use £6k of that for savings interest first, will I be able to add the remaining £5k to the 5k 0% dividend allowance and receive the £10k dividend tax-free?

...........

From the total £16,000 which is tax-free in above example, does the interest part have to be more than the dividend; e.g. can it be £6000 interest and £10,000 of dividends tax-free?

Just plug the data into my model. It'll address all of the scenarios you are asking about.

Consumerist

Question:

If I have transferred £1,100 of my PA to my spouse, will the full £11k still be used in calculating the start of the 0% tax-band on interest receipts?