Clarification about dividend tax and savings income

mrodent33

I am slightly confused and just doing some tax calculations for 24-25. This makes sense to me because the tax year is not yet ended so I may do some additional actions before April.

I have a micro-company but have paid myself only £9100 in income for this tax year. I have not issued any dividends from the company (and probably won't ever again).

I also have quite a lot of GIA investments: from these, so far this tax year, I have received £2340 in divs in these GIA accounts, so let's use a figure of £2500 until year end.

I also anticipate a total interest from bank accounts of maybe £3000 or so by 5 April.

So my question is: do I add the £2500 dividend income to the £9100, and thus arrive at a figure *under* the Personal Allowance, and therefore pay no dividend tax? Or does HMRC add the savings income FIRST... thus pushing things up to (£9100 + £3000 = ) £12100...  making some of those dividends subject to dividend tax?

[NB I have also total taxable gains for CGT purposes for 24-25 of £37000 (i.e. gains of £40000, with the £3k allowance for 24-25). But I don't believe that is relevant to my question (although I'm aware that it would be a very good idea not to make any more gains until April if I want to avoid higher rate tax).]

Dazed_and_C0nfused

mrodent33 said:

I am slightly confused and just doing some tax calculations for 24-25. This makes sense to me because the tax year is not yet ended so I may do some additional actions before April.

I have a micro-company but have paid myself only £9100 in income for this tax year. I have not issued any dividends from the company (and probably won't ever again).

I also have quite a lot of GIA investments: from these, so far this tax year, I have received £2340 in divs in these GIA accounts, so let's use a figure of £2500 until year end.

I also anticipate a total interest from bank accounts of maybe £3000 or so by 5 April.

So my question is: do I add the £2500 dividend income to the £9100, and thus arrive at a figure *under* the Personal Allowance, and therefore pay no dividend tax? Or does HMRC add the savings income FIRST... thus pushing things up to (£9100 + £3000 = ) £12100...  making some of those dividends subject to dividend tax?

[NB I have also total taxable gains for CGT purposes for 24-25 of £37000 (i.e. gains of £40000, with the £3k allowance for 24-25). But I don't believe that is relevant to my question (although I'm aware that it would be a very good idea not to make any more gains until April if I want to avoid higher rate tax).]

You can allocate the Personal Allowance in whichever way gives the lowest liability.

Once the Personal Allowance has been allocated any remaining income must be taxed in the following order,

Non savings non dividend then savings interest and finally dividends.

Using your figures (9100 + 3000 + 2500 = 14600) there would be no liability if you used the Personal Allowance against the earnings and dividend income first. 

The remaining £970 of your Personal Allowance is used against the interest, leaving £2,030 to be taxed.

That all falls into the savings starter rate band , which is a 0% tax rate.  So no income tax to pay.

From what you have posted your CGT liability will be subject to some higher rate tax as you only have £35,670 of your basic rate band left.

NB.  All the above assumes you haven't applied for Marriage Allowance.

mrodent33

Thanks very much. That really clarifies how it works. No marriage allowance is applicable.

Aha, so I'm already (potentially) into higher rate territory re CGT. Fair enough. 

And that is helpful to know at the start of January: given the higher CGT rate now I may in fact take some of that bank account cash and stow it somewhere else, to keep down the interest. Unfortunately I can't of course sell off those dividend-generating investments (with a view to switching to non-div-distributing funds, like the majority of my investments) without bumping up the gains further.

This will really help me plan better for 25-26...