Dividend Allowance on Tax Return

nirish

I'm filling in my first tax return and have submitted £1146 of dividends.  I believe there is no tax to pay on this as it is within the £2000 allowance.
However my calculation at the end adds this total to my income and charges me 40% on it.  Am I doing something obviously wrong?

eskbanker

Although it's commonly referred to, even by HMRC, as an 'allowance', it's actually a nil-rate band, so it is taxable income but taxed at 0%.  It should therefore be included in your total income, and may even cause more of that income to be taxed at 40% if close to a threshold, but in itself it shouldn't be taxed at 40% - if you post more details of your income split and the taxation on it then posters on here will be able to comment further....

ColdIron

Where did you enter the dividends? Did you use the correct supplementary pages intended for dividends or did you just declare it as income? The fact that they are applying income tax rates (20%, 40%) and not dividend rates (7.5%, 32.5%) suggests that you did not

nirish

Ok, so I'm not stupid enough to put it in the wrong section, it's correctly under dividends.

It turns out though that I am stupid enough to get myself confused.

The dividend was added to income for the purpose of calculating my reduced personal allowance which is the type of scenario I presume @eskbanker is referring to, but it actually doesn't appear in the 40% tax breakdown below this.

Dazed_and_C0nfused

It will be an effective rate of 20% then on the dividend income (unless some of it takes your adjusted net income above £125,000).

£1,146 of dividend income would reduce your Personal Allowance by £573.

£573 extra income taxed at 40% = £229.20

£1,146 x 20% = £229.20

Your dividends are still taxed at 0% but there are consequences elsewhere of having that income 

nirish

Thanks, now I'm on top of the situation that's exactly as it is!

Not that it a position to complain about, but I guess that's the curse of this mystical 100k+ tax black hole, effective income tax rate of 60% and now I realise both my £500 savings and £2000 dividend "allowances" are taxed at an effective 20% rate. 

notavailable

nirish said:

I'm filling in my first tax return and have submitted £1146 of dividends.  I believe there is no tax to pay on this as it is within the £2000 allowance.
However my calculation at the end adds this total to my income and charges me 40% on it.  Am I doing something obviously wrong?

Hi all...first post.

I noticed this thread because I was considering buying some shares and doing a little research about tax on dividends.

So correct me if I am wrong but according to HMRC website :

" You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year."

So I believe you shouldn't even have to enter that dividend payment as it falls within your annual allowance.

Dazed_and_C0nfused

notavailable said:

nirish said:

I'm filling in my first tax return and have submitted £1146 of dividends.  I believe there is no tax to pay on this as it is within the £2000 allowance.
However my calculation at the end adds this total to my income and charges me 40% on it.  Am I doing something obviously wrong?

Hi all...first post.

I noticed this thread because I was considering buying some shares and doing a little research about tax on dividends.

So correct me if I am wrong but according to HMRC website :

" You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year."

So I believe you shouldn't even have to enter that dividend payment as it falls within your annual allowance.

No.  There isn't actually an "allowance" and if you complete a Self Assessment return (or R40 return) you need to include all taxable income.

notavailable

Dazed_and_C0nfused said:

notavailable said:

nirish said:

I'm filling in my first tax return and have submitted £1146 of dividends.  I believe there is no tax to pay on this as it is within the £2000 allowance.
However my calculation at the end adds this total to my income and charges me 40% on it.  Am I doing something obviously wrong?

Hi all...first post.

I noticed this thread because I was considering buying some shares and doing a little research about tax on dividends.

So correct me if I am wrong but according to HMRC website :

" You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year."

So I believe you shouldn't even have to enter that dividend payment as it falls within your annual allowance.

No.  There isn't actually an "allowance" and if you complete a Self Assessment return (or R40 return) you need to include all taxable income.

I see well now I am dazed and confused.. perhaps I should leave investing to wiser heads.

From HMRC website :

" You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.

Tax year	Dividend allowance
6 April 2020 to 5 April 2021	£2,000

You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year."

Dazed_and_C0nfused

HMRC don't have a website, that's from gov.uk.

Which sadly seems to not like to get the (sometimes complicated) truth get in the way of how they present things.

This is a much better guide.

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

LITRG also have a really good savings income and dividend factsheet.

notavailable

Dazed_and_C0nfused said:

HMRC don't have a website, that's from gov.uk.

Which sadly seems to not like to get the (sometimes complicated) truth get in the way of how they present things.

This is a much better guide.

LITRG also have a really good savings income and dividend factsheet.

That's helpful...thanks. .

I am shocked a Government website could get things so wrong though.

If I can't trust them to get it right who can I.

N.B. I haven't been here long enough to post links so I had to delete that from your post