Tax on dividends question

hoofy

I have my own Ltd Company and take no income from it, nor do I have any other income from employment.

I earn roughly 15k in bank interest.

I am thinking of taking 20k from my Ltd Co in dividends.

Can someone give me a break down on my tax liability? Thanks.

El_Torro

Google is your friend for questions like this. Take a look at this page: https://www.gov.uk/tax-on-dividends

You get £500 of dividends tax free. If you take more than £500 then the percentage of tax you pay depends on what income tax bracket you are in. From what you say you will pay 8.75% tax on £19,500 of your dividends. 

hoofy

I thought that might be the case.

But if I took all the cash out of my bank and put it in a regular investment account and bought funds that paid no income or dividends and then took the 20k in dividends from my Ltd Co, would the first £12570 be free from tax?

Isthisforreal99

hoofy said:

I thought that might be the case.

But if I took all the cash out of my bank and put it in a regular investment account and bought funds that paid no income or dividends and then took the 20k in dividends from my Ltd Co, would the first £12570 be free from tax?

Depends how it's treated. Surely these are questions for your accountant on how best to take out money tax efficiently.

If you use up your personal allowance then more of your savings interest becomes taxable at 20%

tripled

I agree with @El_Torro regarding the dividends.

If your bank interest is not sheltered from tax, for example in an ISA, then your bank interest is currently using your tax free allowance. If you invest in funds outside of an ISA, yes you may free up tax-free allowance if there are no dividends or interest, however, they could also become liable to capital gains.

Whatever you decide, unless you have a complete National Insurance record, it may also be worth considering drawing a salary of £542 per month, rather than taking it all of dividends. Although you may pay income tax at the higher rate of 20%, the salary may be offset against corporation tax, so may be more tax efficient overall, and for the sake of a very small amount of employer national insurance contributions, it will build your record for your state pension. https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions