Dividends &Tax

Good morning all. My wife currently earns approximately £10k a year so doesn't pay income tax. Am I correct in thinking that any dividends she receives are included in her personal allowance? Does she also receive the £1000 dividend allowance on top? In other words rather than just having the £1000 dividend allowance she would also get another £2570 allowing her to receive dividends up to £3570 without having to pay tax. Thanks for your time.

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  • ColdIron
    ColdIron Posts: 8,681
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    edited 12 October 2023 at 10:23AM
    Yes, yes and yes
    The dividend allowance reduces to £500 next year
    Presumably she is using her ISA allowance each year?
  • DigSunPap
    DigSunPap Posts: 375
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    You are correct that in the UK, individuals have both a personal allowance and a separate dividend allowance. If your wife earns £10k annually, she falls within her personal allowance, making her income tax-free. She could also receive dividends up to the dividend allowance, which for last year tax year was £2k, not £1k. So, in total, she could receive up to £2k in dividends without incurring dividend tax. Which means that she could potentially have her entire £10k income tax-free and receive up to £2k in dividends without being taxed for that tax year.
  • RedImp_2
    RedImp_2 Posts: 234
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    DigSunPap said:
    You are correct that in the UK, individuals have both a personal allowance and a separate dividend allowance. If your wife earns £10k annually, she falls within her personal allowance, making her income tax-free. She could also receive dividends up to the dividend allowance, which for last year tax year was £2k, not £1k. So, in total, she could receive up to £2k in dividends without incurring dividend tax. Which means that she could potentially have her entire £10k income tax-free and receive up to £2k in dividends without being taxed for that tax year.
    What you’ve written contradicts the earlier answer.  I believe that one is correct
  • Stegor said:
    Good morning all. My wife currently earns approximately £10k a year so doesn't pay income tax. Am I correct in thinking that any dividends she receives are included in her personal allowance? Does she also receive the £1000 dividend allowance on top? In other words rather than just having the £1000 dividend allowance she would also get another £2570 allowing her to receive dividends up to £3570 without having to pay tax. Thanks for your time.

    If she has spare Personal Allowances, after accounting for any other taxable income, then any dividend income will use those first.

    It is only after she has used her full Personal Allowance, be that £11,310 or £12,570, that she can then use the dividend nil rate band.  This isn't actually an allowance in the normal sense, it's currently up to £1,000 of dividends which are taxed at 0%.

    It makes no difference whatsoever to most people but in at least one niche situation that £1,000 taxed at 0% can make a big difference to other liabilities as it means she would be deemed a basic rate payer.  If she had deferred her State Pension under the pre 2016 rules and opted to take a deferral lump sum then that would be taxed at 20% despite her not paying any tax.
  • Stegor
    Stegor Posts: 24
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    Thanks for the replies. Would she have to declare the dividend income through self assessment if it's above the dividend allowance but below her personal allowance? Thanks again
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