Avoiding the notional 60% tax band

Dazed_and_C0nfused

chucknorris said:

Dazed_and_C0nfused said:

Yes, I had forgotten they were VCT dividends.

But there is no allowance for dividends, there is a 0% rate band which is why (taxable 🙂) dividend income of £2,000 taxed at 0% can incur a £400 tax liability.

From the inland revenue's website: https://www.gov.uk/tax-on-dividends:

"no tax on £2,000 of dividends, because of the dividend allowance"

But maybe you think that you should contact the inland revenue and correct them! Because either they don't know what their 'dividend allowance' is, or you don't. My money is on you not knowing.

Sometimes I think I do know more than whoever writes the information on gov.uk.

Have a look at the LITRG info which gives a much better explanation

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

And I totally agree that there is no tax on the first £2,000 of dividend income but that doesn't stop your income tax liability increasing by £400 in the type of scenario you are taking about. 

At the end of the day most people are interested in the extra tax payable and £2,000 of dividend income is effectively being taxed at 20% when it all falls in the 60% band.

EdGasketTheSecond

What's a 'notional 60% tax band'?

Dazed_and_C0nfused

EdGasketTheSecond said:

What's a 'notional 60% tax band'?

When you have Adjusted Net Income between £100,000 and £125,000 and lose £1 of your Personal Allowance for every £2 your Adjusted Net Income exceeds £100,000.

Loss of your Personal Allowance plus the extra higher rate tax due is 60% (more if Scottish resident for tax purposes).

VXman

EdGasketTheSecond said:

What's a 'notional 60% tax band'?

https://www.theguardian.com/uk-news/2018/nov/03/tax-trap-budget-children
????

ratechaser

62% actually, once NI is factored in...

chucknorris

Dazed_and_C0nfused said:

chucknorris said:

Dazed_and_C0nfused said:

Yes, I had forgotten they were VCT dividends.

But there is no allowance for dividends, there is a 0% rate band which is why (taxable 🙂) dividend income of £2,000 taxed at 0% can incur a £400 tax liability.

From the inland revenue's website: https://www.gov.uk/tax-on-dividends:

"no tax on £2,000 of dividends, because of the dividend allowance"

But maybe you think that you should contact the inland revenue and correct them! Because either they don't know what their 'dividend allowance' is, or you don't. My money is on you not knowing.

Sometimes I think I do know more than whoever writes the information on gov.uk.

Have a look at the LITRG info which gives a much better explanation

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

And I totally agree that there is no tax on the first £2,000 of dividend income but that doesn't stop your income tax liability increasing by £400 in the type of scenario you are taking about. 

At the end of the day most people are interested in the extra tax payable and £2,000 of dividend income is effectively being taxed at 20% when it all falls in the 60% band.

It is a dividend allowance, even the Inland revenue call it that. I never raised it in connection with the notional 60% tax band, you did, when you got confused about VCT dividends (when you were wrong yet again).

dales1

This is a very nasty reply to a helpful and true comment, from a valued and respected forum contributor.

You should take less lotion on an evening, and you should also climb off your BTL high horse (which people are heartily sick of you boasting about).

chucknorris

dales1 said:

This is a very nasty reply to a helpful and true comment, from a valued and respected forum contributor.

You should take less lotion on an evening, and you should also climb off your BTL high horse (which people are heartily sick of you boasting about).

I don't own much property now, and you are the only one bringing up BTL in this thread (I haven't mentioned it) so, getting back to the point, it is not true comment. The £,2000 is a 'dividend allowance, in the same way that the 'personal allowance' is too, or are you claiming the Inland revenue have got that wrong too? From https://www.gov.uk/income-tax-rates:

Your tax-free Personal Allowance

The standard Personal Allowance is £12,500, which is the amount of income you do not have to pay tax on.

 

No one on here was claiming that the dividend allowance would not impact upon the notional 60% tax band, that was something dazed and confused brought up. What was being discussed was whether VCT dividends would impact upon it (not the dividend allowance), when dazed and confused missed the point that the dividends from a VCT would not impact upon that notional tax band being applied. Because you don’t have to declare them (unlike the first £2,000 of dividend income that has to be declared). He actually made a valid point (which I thanked him for, and thanked another one of his posts on here too) about the dividend income impacting upon the 60% tax band, but that was not what we were discussing. I actually said to him:

Your confusion lies in comparing VCT's to an allowance on something that is taxable i.e. the 2k allowance on dividend income (otherwise taxable income) whereas VCT's dividends are similar to ISA and SIPP dividends (not taxable so not declared).

isasmurf

Firstly, the Inland Revenue hasn't existed for over 15 years. Anyone should be suspicious of any information claiming to be from the "Inland Revenue".

Secondly, just because HMRC call something an allowance doesn't mean it is an allowance in the same sense as the personal allowance. This policy paper from when the dividend allowance was introduced explains
https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet
"The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.

Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance."

chucknorris

isasmurf said:

Firstly, the Inland Revenue hasn't existed for over 15 years. Anyone should be suspicious of any information claiming to be from the "Inland Revenue".

Secondly, just because HMRC call something an allowance doesn't mean it is an allowance in the same sense as the personal allowance. This policy paper from when the dividend allowance was introduced explains
https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet
"The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance."

Firstly the dividend income allowance is £2k (not £5k).

I know (and I assume most others do too) that the dividend allowance does not reduce your total rate of income, it is merely a nil rate of tax income band, that is NOT being disputed. What is being disputed (I don't know why because it seems irrelevant and overly pedantic) is whether or not there is a 'dividend allowance'. Myself and HMRC (Ok I earlier said Inland revenue, my bad) say there is, Dazed and confused that there isn't (he said above: But there is no allowance for dividends, there is a 0% rate band). But that 0% rate band is the allowance, which most (including HMRC) call the 'dividend allowance'. No one is disputing that it can still have a tax implication at higher marginal rates of income tax bands. Which is why it was NOT being discussed in relation to the notional 60% tax band, what was being discussed was VCT dividends which are not declared on tax returns and would help avoid paying 60% tax. However I am not attracted to them because of the higher risk.

Whether the dividend allowance should be called something else, is (at least to me) an irrelevance, everyone knows it by that name, because that is what both the Gov and HMRC call it. But it does not avoid falling paying 60% tax, and we all know that, so why are we still talking about whether it should be called an allowance or not. The point is HMRC call it the dividend allowance, so doesn't it make sense to refer to it by the name that they use for it?