Tax on Savings/Dividends 2016/17

gee9fam

Can someone confirm the tax payable in the following scenario for the 2016/17 tax year please:

Salary: 8040
Savings Interest Received Gross : 5500
Dividends Received : 26000
Tax Code:1100L

I'm getting a little confused regarding the savings and dividend tax free bands.

Thank you

TheCyclingProgrammer

Your income will be taxed in the following order: salary, savings interest, dividends.

Personal allowance is £11k. Your salary and the first £2960 of your savings interest will be covered by this. As your total non-savings income is above £16k I believe you aren't eligible for the starter rate for savings* however there is still the £1k savings allowance, leaving you with £1040 in savings interest that will be taxed at the basic rate = £208.

The first £5k of your dividends are covered by the dividend allowance, the remaining £21k will be taxed at the basic dividend rate of 7.5% = £1,575.

Total tax due: £1783.

* I'm assuming "other income" includes your dividend income when checking eligibility for the starter rate for savings. Obviously, if it doesn't this changes things a bit as you'd qualify for the whole of the starter rate, meaning all of your savings interest will be tax free.

xylophone

http://www.litrg.org.uk/tax-guides/tax-basics/what-tax-rates-apply-me

Pennywise

You are eligible for the £5,000 personal savings allowance so none of your £5.5k interest is taxable. (£5,000 plus £1,000 annual zero rate).

Of your dividends of £26,000, £5,000 is zero rate, leaving £21,000 but you have unused personal allowance (£11k minus £8040) leaving £2,960 available to set against dividends, so only £18,040 subject to tax at 7.5% which is £1,353.

So total tax liability £1,353.

You can choose to offset your personal allowance against any income - there's no longer a prescribed order. The £5k personal savings allowance is available if wages/interest is under £16k - dividends are at the bottom of the calculation!

My figures here agree to tax software.

TheCyclingProgrammer

Thanks for clearing up about whether dividends counted towards the starter rate - I kept finding contradicting statements about this.

Interesting about applying the personal allowance in that way though, I thought dividends were always taxed as the top slice of income.

gee9fam

Many thanks for the replies, that makes it much clearer as it does seem confusing depending on the scenario. The examples given on many sites seem to focus on a larger salary than in my situation.

polymaff

You may be going to have problems with your tax return this year if you plan to file online. HMRC have stated that returns reporting "Non-savings income of less than the Personal Allowance (PA) & Savings Starting Rate (SSR) plus savings income not covered by the Personal Savings Allowance (PSA)." will be excluded from self-assessment and that a paper return will be required - as they don't anticipate fixing the error in their software until 2017/18.

And this is not (intended to be) an April 1st posting!

If you want to see how your 16/17 tax affairs should work out, go to:

http://forums.moneysavingexpert.com/showpost.php?p=70422918&postcount=9

Cook_County

This article explains the calculations: http://www.rossmartin.co.uk/sme-tax-news/2634-software-specification-error-affects-2016-17-self-assessment