Shares

whu

I am a novice when it comes to shares and would appreciate your advice on the following:
1 How much tax do you pay on dividends?
2 I think the CGT allowance is £9600 - does that mean if you make less than that sum when selling shares in a given year you do not have to pay CGT?If so do dividends fall within the allowance also or do you pay tax on dividends irrespective?
Thanks.

cheerfulcat

1 - A basic rate taxpayer has a liability of 10% which is satisfied by the tax credit attached to the dividend.

2 - Yes, no CGT payable if your profit is under the exempt amount. Dividends don't count.

whu

Thanks -what do you pay on dividends if you are a higher rate tax payer?

earlgrey_3

Dividends from UK shares are paid with 10% tax already deducted and that can't be reclaimed even if the shares are in a an ISA or PEP. If you pay at the standard rate there's no more income tax to pay. Capital gains is only paid on any gains made on the share value when you come to sell the shares if it's over your allowance.

cheerfulcat

whu wrote: »

Thanks -what do you pay on dividends if you are a higher rate tax payer?

An extra 22.5%.

whu

I get it -so if you are a basic rate income tax payer you just pay the 10% and nothing else - what about if you are a higher rate income tax payer?
Just seen the post above - thanks - so if you made £100 in dividends you get £90 - then if you are a higher rate tax payer you pay an extra 22.5% on the £90 - ie £20.25?is that right?

cheerfulcat

No, because the extra 22.5% is on the grossed-up dividend. The dividend actually paid in your example is £90 paid + £10 tax credit to make up £100 dividend income, so another £22.50 to pay in tax.

whu

Cheers - that is very helpful - when I wite to HMRC telling them how much interest I have earned over the year (am a higher rate tax payer) do I also tell them about the dividend so they collect the extra 22.5%?

cheerfulcat

Yes, you declare the dividend income. Make sure to keep any tax vouchers. If you are a higher rate taxpayer it makes a lot of sense to hold income type investments in an ISA - saves tax and faff!

whu

My shares are free ones from standard life - am thinking of reinvesting the dividends to get more shares rather than getting the dividend payments as they are not very much - is there any difference in the tax situation by reinvesting them rather than taking the dividend?Also can I transfer them into an ISA?

cheerfulcat

Reinvesting the dividends is not a bad idea, though bear in mind the " all eggs in one basket " risk.

The tax situation as far as what you pay is concerned will be unchanged, however regularly reinvesting dividends could result in a horrendous CGT calculation should you ever come to sell your shares!

You can't transfer shares into an ISA, unfortunately. You have to sell and buy back within the wrapper.