dividends, savings and allowances 7 January at 1:03PM in Savings & investments 8 replies 396 views

julie27fred

if I earn £11,600,  & get £3300 in dividends in the 2023-2024 tax year will i need to pay dividend tax? Also would interest from non ISA savings affect this or would they be considered separate using the £5000 starting rate allowance?

eskbanker

Savings income needs to be considered as part of the equation:

Savings and dividend income is the highest part of total income

Savings and dividend income is taxed as the highest part of a person’s total income, in computing a person’s overall tax liability. ITA07/S16 sets out the following rules.

• If a person has savings income but no dividend income, the savings income is treated as the highest part of their total income.
• If a person has dividend income but no savings income, the dividend income is treated as the highest part of their total income.
• If a person has both savings and dividend income, the amounts taken together are treated as the highest part of their total income, and the dividend income is taken as the highest part of the combined amount.

https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim1090

AmityNeon

julie27fred said:

if I earn £11,600,  & get £3300 in dividends in the 2023-2024 tax year will i need to pay dividend tax? Also would interest from non ISA savings affect this or would they be considered separate using the £5000 starting rate allowance?

Personal Allowance = 12,570
12,570 - 11,600 = £970 remaining PA

The remaining £970 of PA can be allocated to your dividend income, and the Dividend Allowance for 2023/24 is £1,000:
3,300 - 970 = 2,330
The first £1,000 is taxed at 0%, so you'd be taxed on £1,330 @ 8.75% = £116.37.

Your savings interest can benefit from the full £5,000 starting rate for savings, and an additional £1,000 from your PSA if applicable. Savings income above £6,000 would be taxed at 20%.

ColdIron

Dividend tax for 2023/24 is 8.75% not 20% so £116.37 rather than £266

Any savings interest (you don't say how much) will use up your Personal Allowance (as it's considered before dividends) and would increase the amount of dividends that can be taxed

AmityNeon

ColdIron said:

Dividend tax for 2023/24 is 8.75% not 20% so £116.37 rather than £266

Oops yes, the rate is 8.75%.

ColdIron said:

Any savings interest (you don't say how much) will use up your Personal Allowance (as it's considered before dividends) and would increase the amount of dividends that can be taxed

Reliefs and allowances can be allocated in a way which will result in the greatest reduction to the taxpayer's income tax liability.

You reported this experience yourself with your Self Assessment software.

ColdIron

Yes, oops as well

jimjames

It might be worth looking at the allocation in your ISAs to make the most of your tax free allowances and get most tax benefit from the investments held inside them.

Rollinghome

It’s usually best to plan ahead as soon as possible. Especially now with some big tax changes coming down the line from April, so there's not much time left.

The dividend tax allowance drops from £2,000 to £1,000 from Apr 23 and then to £500 the following year. The CGT allowance drops from £12,300 to just £6k, then to just £3k from Apr 24.

So if investments need re-arranging to hold them in the most efficient way, as Jim rightly mentions, there’s only about 12 weeks to do it before it becomes trickier.  If you still have any CGT allowance to spare, then it might be worth using “Bed and ISA” or “Bed and Spouse” trades to re-base gains, or just swapping all or part of a holding for something very similar

A lot of people will also be getting a lot more interest on saving this year and with the allowance at £1000/£500, a lot more will be paying tax on that interest.  Some might want to close and reopen annual interest accounts to pull interest in this year rather than next.  Would be a pain to get £2k of interest over the next two years but as £500 this year and then £1500 next that you then have to pay tax on.

Planning further ahead, I notice that Martin Lewis has written about cash ISAs, “The main question now is 'what pays the highest rate'?”. I’d tend to disagree. It’s just one of the questions.

ISAs are a use it or lose it tax break.  So although it might not be much use to someone now, if there’s any chance of an inheritance or a PB/lottery win at some time in the future you’d be kicking yourself at all those years of ISA allowances you passed up on when you start to get a big tax bills on investments.  There needs to be some forward planning.

Dazed_and_C0nfused

julie27fred said:

if I earn £11,600,  & get £3300 in dividends in the 2023-2024 tax year will i need to pay dividend tax? Also would interest from non ISA savings affect this or would they be considered separate using the £5000 starting rate allowance?

Have you either already applied for Marriage Allowance or do you intend on applying for it for 2023:24?

That would impact the amount of savings starter rate band available.