Tax on dividends

sanfairyanne

I believe the 2019/20 tax year allows for a £12,500 capital gains tax allowance.
I wonder if profit from dividends are considered a capital gain in exactly the same way as say a gain from the sale of stock.

I believe I’m right in saying that there is a dividend allowance of £2000. As a basic rate taxpayer I understand I’d pay 7.5% on dividend profits above £2000.

My question is whether I can offset some capital losses against BOTH gains from stock and gains from dividends?

I’m assuming this:

If £10,000 was made from dividends you’d pay 7.5% on £8000.
If £10,000 was made from the sale of stock I’d have a total of £18,000 minus CGT allowance at £12,500 = taxable gains of £5,500. However, if I sell say WPCT at a loss of £5000 I’d only have to pay tax on £500.

Is this.correct?

Many thanks in advance

Reed_Richards

sanfairyanne wrote: »

I wonder if profit from dividends are considered a capital gain in exactly the same way as say a gain from the sale of stock

No dividends are not capital gains; you know that really don't you?

sanfairyanne wrote: »

I believe I’m right in saying that there is a dividend allowance of £2000

So how could that be if dividends were considered capital gains?

bowlhead99

sanfairyanne wrote: »

I believe the 2019/20 tax year allows for a £12,500 capital gains tax allowance.

No, the capital gains exemption is only on the first £12000 of capital gains less capital losses

I wonder if profit from dividends are considered a capital gain in exactly the same way as say a gain from the sale of stock.

I believe I’m right in saying that there is a dividend allowance of £2000. As a basic rate taxpayer I understand I’d pay 7.5% on dividend profits above £2000.

My question is whether I can offset some capital losses against BOTH gains from stock and gains from dividends?

I’m assuming this:

If £10,000 was made from dividends you’d pay 7.5% on £8000.
If £10,000 was made from the sale of stock I’d have a total of £18,000 minus CGT allowance at £12,500 = taxable gains of £5,500. However, if I sell say WPCT at a loss of £5000 I’d only have to pay tax on £500.

Is this.correct?

No it's not correct.

Dividends are not taxed like a gain on the sale of stock. They are taxed through income tax at a special rate (7.5% as BR taxpayer, more if your total income including the dividends takes into a higher rate tax bracket) after you have used up your personal income tax allowance and your special 0% rate on the first £2000 of dividends.

Whereas sales of assets are taxed through capital gains tax. You deduct losses from gains to get your net gains, and you have an annual exemption on the first £12000 (not £12500) of gains

You can't use your spare capital gains exemption to avoid paying income taxes on your dividends.

In the example above you have £10000 from the sale of stock less £5000 losses on the WPCT sale so the overall net gains are only £5000. That £5000 of net gains is entirely covered by your £12000 annual exemption, but you only need £5000 of the CGT exemption because you only have £5000 of gains. There is no CGT to pay as a result.

But if you have £10000 of dividends, you'll still be paying tax on them: 0% on the first £2000 and 7.5% on the last £8000 (assuming the dividend income when added together with your interest income and salary income and business income and pension income doesn't take you into higher rate tax bracket)

polymaff

sanfairyanne wrote: »

My question is whether I can offset some capital losses against BOTH gains from stock and gains from dividends?

Your username hints at the chances that you'll get THAT past HMRC...:)

sanfairyanne

Many thank I can see that I am getting confused with income tax allowance and capital gains tax allowance. May I just ask; taking aside any capital gains. If my only income is from UK dividends then I assume I can use my full personal allowance of £12,500 before I start paying tax at 7.5% on dividends.

Dazed_and_confused

I believe I’m right in saying that there is a dividend allowance of £2000.

No, there is no "allowance" for dividends.

Unless covered by your Personal Allowance dividends will be taxed at one of the dividend tax rates of 0%, 7.5%, 32.5% or 38.1%.

A maximum of £2,000 is taxed at 0% and there are circumstances where dividends taxed at 0% mean your overall tax bill increases despite the dividends being taxed at 0%.

sanfairyanne

Dazed and Confused

“A maximum of £2,000 is taxable at 0%”

Maybe “allowance” was the wrong word, but they sound like one and the same. I.e you make a bundle on dividends but they’re only taxable above £2000. And this is considered income tax and not a capital gain.

Dazed_and_confused

Not being taxable and being taxed at 0% are two completely different things.

Imagine you had a taxable salary of £100,000 and no other income. You would get a Personal Allowance of £12,500 (current tax year).

Add in £2,000 of dividend income taxed at 0% and your Personal Allowance would be reduced to £11,500. Adding £400 to your tax overall tax bill. So dividends taxed at 0% actually incur a 20% tax increase!

Similar things affect some people in a Child Benefit household and some who can still get Married Couple's Allowance.

sanfairyanne

Dazed and Confused

I’m really dazed and confused. You wrote:

“Add in £2,000 of dividend income taxed at 0% and your Personal Allowance would be reduced to £11,500. Adding £400 to your tax overall tax bill. So dividends taxed at 0% actually incur a 20% tax increase!”.

I don’t understand how you reach the figure of £11,500. Neither do I understand how you reach £400. Sorry to seem so dumb but I’m really confused.

LobsterMemory

Why worry about it as it doesn't seem to reflect your situation

Suggest you focus on your 2nd question and don't assume anything when you ask it

Try something like

My income is £x of dividends, £y of interest and £z of any other income. Can you tell me how this is taxed please

Reed_Richards

sanfairyanne wrote: »

I don’t understand how you reach the figure of £11,500. Neither do I understand how you reach £400. Sorry to seem so dumb but I’m really confused.

See https://www.moneysavingexpert.com/banking/tax-rates/
But Dazed and Confused has cited an particular example in order to make a point; hopefully that example will not apply to you. Follow the advice from LobsterMemory.