Tax on dividends

20SmthngSver wrote: »

and up to £20,000 Individual Savings Allowance (ISA)

If you open your window and listen carefully you will hear D&C's head explode

No allowance in the acronym ISA. It means Individual Savings Account, and yes, you can invest up to £20,000 per year and enjoy tax-free income and growth.

The Personal Savings Allowance depends on the rate at which you pay tax. For a person whose income is taxed at the basic rate it is indeed £1000, which would equate to interest on over £60k at the best easy access rates currently available.

The dividend allowance is indeed £2,000 as stated. Dividend income is taxed differently to other income in the hands of the recipient as it is a distribution of a companies taxed income to its shareholders, so to avoid that income being effectively taxed twice by reference to the recipient special rates apply, i.e. 7.5% for basic rate taxpayers; 32.5% for higher rate taxpayers etc.

Thank you ColdIron :mad:

Other than the Personal Allowance there are no tax free allowances for either taxable savings or dividend income.

All such income which was previously taxable is still taxable in the same way.

But some of the savings and dividend income might be taxed at one of the three 0% tax rates that are currently in place (savings starter, savings nil and dividend nil).

For most people this probably makes no difference but for plenty it means an increase in the overall amount of tax payable.

Take for example the higher earner in a family claiming Child Benefit. They have a taxable (P60) salary of £50,000, no other taxable income and the family get get c£1700 in Child Benefit. No High Income Child Benefit Charge is due.

But their next door neighbour also earns £50,000 (P60 figure), had the same Child Benefit but has managed to earn £500 in interest and £2000 in dividends. Yes all the interest and dividends are taxed at 0% (savings nil and dividend nil rates) but 25% of the Child Benefit will have to be repaid to HMRC.

Similar impacts on people claiming Married Couple's Allowance.

Can also reduce your Personal Allowance if adjusted net income takes you over £100,001.

And some Marriage Allowance recipients with just £1 of dividend income could find themselvee with an increased tax bill of £250 (current year figure).