dividends over the 2K dividends allowance, but within personal allowance.

BlueLeaf

Hi,

Asking on behalf of a relative - if their dividends over the year is more than the £2K dividend allowance (say £3.5K), but the extra £1.5K is covered within their £12.5K personal allowance, do they still need to inform HMRC? Or only tell HMRC if any dividends over the dividends allowance becomes taxable (not covered by their 12.5K personal allowance)

They are in receipt of a state pension and a tiny personal pension (which has a tax code assigned to it).

Thanks

bowlhead99

Dividends are taxed as the 'top slice' of income and so the receipt of them on top of other income will not 'interfere' with the operation of their tax code - it doesn't need to cause tax to be paid on a pension, and you could simply pay up the dividend tax at the end of the year once you know how much it is, if it's anything.

The tax code is designed to help the pension provider to withhold income tax at source on the pension and could be adjusted if you're receiving lots of other income or have restricted personal allowances, but if the person is not receiving any other taxable income that needs to be taken into account for income tax purposes (because the excess of dividends over the 'spare' personal allowance doesn't exceed the 0% band for dividends) then there is no need to tell HMRC you have it. 

If doing a proper annual 'self assessment' you are required to be truthful about the dividends so should put them in, even if it doesn't cause any extra tax to be paid. However if there is no tax to pay, then as long as you make your filing on time HMRC will not tax or fine you if you omit the dividends, because you won't have avoided any tax due. If you are not otherwise required to report your income through a proper self assessment and there is no tax to pay on the dividends - and I'm presuming you do not need to claim any relief on them e,g, foreign tax deducted at source, to get to that 'no UK tax to pay' situation - then no need to tell HMRC that the dividends happened.

(disclaimer, not a tax lawyer)

[Deleted User]

Use this calculator on the numbers https://www.which.co.uk/money/tax/income-tax/income-tax-on-savings-and-investments/dividend-tax-calculator-201920-a30cd5g61pvk