Dividend Tax Calcs

DoctorStrange

Hi

If I earn say £40k from PAYE and have £12k in dividends, is the div tax calc:

£12k less £2k free allowance = £10k at 7.5% (so £750 in tax) or is it

£40k + £2k tax free, = £8k at 7.5% + £2k at 32.5% (so £1250 in tax)?

(assuming the basic rate band is 50k for simplicity, I appreciate it's slightly over)

Ta!

Dazed_and_C0nfused

There is no allowance for dividends.

Using a Personal Allowance of £12,570 and basic rate band of £37,700 then the £12k would be taxed,

£2,000 x 0% 
£8,270 x 7.5%
£1,730 x 32.5%

If applicable High Income Child Benefit Charge of 20% would also be payable (assuming the £52k was your adjusted net income).

lisyloo

For 2021/2022 

12,570 income @ 0%
2,000 divs @ 0%
27,430 income @ 20%
8,270 divs @ 7.5%
1,730 divs @ 32.5%

self assessment would calculate that for you but I like to check.

if you can afford it then it would be a good idea to put around £2k into a pension before April 5th - you would save the 20% income tax (it will be reclaimed and put into the pension), and also you’d save 25% on the dividends as you’d then pay 7.5% instead of 32.5%.
if you have salary sacrifice at work then it might be even better than that.

can you afford to do That?

DoctorStrange

Dazed_and_C0nfused said:

There is no allowance for dividends.

Using a Personal Allowance of £12,570 and basic rate band of £37,700 then the £12k would be taxed,

£2,000 x 0% 
£8,270 x 7.5%
£1,730 x 32.5%

If applicable High Income Child Benefit Charge of 20% would also be payable (assuming the £52k was your adjusted net income).

Thanks, that's what I thought but I'm being told otherwise so wanted to double check

MattMattMattUK

Does your £40k have any deductions paid into your pension? If yes then hopefully more than £2k, if not then pay £2k into your pension.