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    • tmppension
    • By tmppension 3rd Jan 18, 12:48 PM
    • 5Posts
    • 0Thanks
    tmppension
    60% tax!
    • #1
    • 3rd Jan 18, 12:48 PM
    60% tax! 3rd Jan 18 at 12:48 PM
    I am in the fortunate position where my 2017/18 PAYE earnings will be just over £100k. To avoid losing my personal allowance I have used salary sacrifice to put extra into my pension and bring my gross salary down to £99,900 for this tax year. I haven't completed a self assessment return for some years as HMRC wrote to me to ssy they were happy I didn't need to complete one unless my circumstances changed. Other than a larger bonus this year my circumstances haven't changed.

    My only other income in minimal savings interest, less than £100 and share dividends of approx £900 outside an ISA.

    I have just realised that though the dividends are tax free they will count towards my income therefore my total income will be over £100k. That means completing a self assessment and losing some of my personal allowance.

    Am I correct, will HMRC add my dividends to my PAYE income?

    Is it up to me to inform HMRC?

    I would be grateful for views on whether I am correct.

    Thanks
Page 1
    • BoGoF
    • By BoGoF 3rd Jan 18, 12:52 PM
    • 3,201 Posts
    • 2,519 Thanks
    BoGoF
    • #2
    • 3rd Jan 18, 12:52 PM
    • #2
    • 3rd Jan 18, 12:52 PM
    Yes, you are correct - the dividends will be added to your PAYE income when calculating if your income is over £100,000.


    Can't you increase your pension contributions?
    • trailingspouse
    • By trailingspouse 3rd Jan 18, 1:26 PM
    • 2,680 Posts
    • 4,368 Thanks
    trailingspouse
    • #3
    • 3rd Jan 18, 1:26 PM
    • #3
    • 3rd Jan 18, 1:26 PM
    The first £5000 (soon to be reduced to £2000) of dividend income is tax free?
    • BoGoF
    • By BoGoF 3rd Jan 18, 1:34 PM
    • 3,201 Posts
    • 2,519 Thanks
    BoGoF
    • #4
    • 3rd Jan 18, 1:34 PM
    • #4
    • 3rd Jan 18, 1:34 PM
    The first £5000 (soon to be reduced to £2000) of dividend income is tax free?
    Originally posted by trailingspouse

    It's not tax free but is taxed at 0% rate - it's still treated as taxable income albeit at 0%
    • TheCyclingProgrammer
    • By TheCyclingProgrammer 3rd Jan 18, 1:35 PM
    • 3,173 Posts
    • 1,851 Thanks
    TheCyclingProgrammer
    • #5
    • 3rd Jan 18, 1:35 PM
    • #5
    • 3rd Jan 18, 1:35 PM
    The first £5000 (soon to be reduced to £2000) of dividend income is tax free?
    Originally posted by trailingspouse
    It still affects your total income.
    • tmppension
    • By tmppension 3rd Jan 18, 2:38 PM
    • 5 Posts
    • 0 Thanks
    tmppension
    • #6
    • 3rd Jan 18, 2:38 PM
    • #6
    • 3rd Jan 18, 2:38 PM
    Thanks, you've validated my understanding. At first I just assumed tax free was tax free but hadn't realised it was a 0% tax band!

    I will increase my pension contribution to avoid the hassle and loss of personal allowance!
    • singhini
    • By singhini 3rd Jan 18, 4:33 PM
    • 335 Posts
    • 200 Thanks
    singhini
    • #7
    • 3rd Jan 18, 4:33 PM
    • #7
    • 3rd Jan 18, 4:33 PM
    I'm getting confused again I thought it was:
    £11,500 = tax free
    £33,500 = 20%
    £105,000 = 40%


    So if I've got £82 paid to me as dividends from shares, then is my tax free allowance £11,582
    • polymaff
    • By polymaff 3rd Jan 18, 4:49 PM
    • 2,111 Posts
    • 917 Thanks
    polymaff
    • #8
    • 3rd Jan 18, 4:49 PM
    • #8
    • 3rd Jan 18, 4:49 PM
    I'm getting confused again I thought it was:
    £11,500 = tax free
    £33,500 = 20%
    £105,000 = 40%


    So if I've got £82 paid to me as dividends from shares, then is my tax free allowance £11,582
    Originally posted by singhini
    You're confused - so don't add to that with undefined expressions like "tax free allowance" You have a personal allowance of £11,500 it appears. No income is going to increase your personal allowance. If only!

    Other allowances exist. Dividend income may be taxed at 0% due to the Dividend Allowance but - again - no income will increase the allowance.

    And - as others have said - don't confuse tax-free with taxed at 0%. If something is truly tax-free it plays no part in self assessment.
    • singhini
    • By singhini 3rd Jan 18, 5:05 PM
    • 335 Posts
    • 200 Thanks
    singhini
    • #9
    • 3rd Jan 18, 5:05 PM
    • #9
    • 3rd Jan 18, 5:05 PM
    You're confused - so don't add to that with undefined expressions like "tax free allowance" You have a personal allowance of £11,500 it appears. No income is going to increase your personal allowance. If only!

    Other allowances exist. Dividend income may be taxed at 0% due to the Dividend Allowance but - again - no income will increase the allowance.

    And - as others have said - don't confuse tax-free with taxed at 0%. If something is truly tax-free it plays no part in self assessment.
    Originally posted by polymaff
    Thanks Polymaff (you are right, its not tax free but a personal allowance).


    So I truly understand it, would my figures be something like this:
    £11,500 = Personal Allowance
    £82 = 0%
    £33,500 = 20%
    £105,000 = 40%


    Also what do I do with company car (if the BIK value is £3,140 and thus 40% tax liability would be £1,256, do I treat the £3,140 as income).
    • polymaff
    • By polymaff 3rd Jan 18, 5:49 PM
    • 2,111 Posts
    • 917 Thanks
    polymaff
    Thanks Polymaff (you are right, its not tax free but a personal allowance).


    So I truly understand it, would my figures be something like this:
    £11,500 = Personal Allowance
    £82 = 0%
    £33,500 = 20%
    £105,000 = 40%


    Also what do I do with company car (if the BIK value is £3,140 and thus 40% tax liability would be £1,256, do I treat the £3,140 as income).
    Originally posted by singhini
    No, as there are other allowances - plus a loss of personal allowance at a rate of £1 for every £2 of taxable income above £100,000. As, like the Dividend Allowance, the other allowances are source-specific, you need to consider / tell us the sources of the incomes which make up your total taxable - best done in the order "non-savings taxable income", "savings taxable income", "dividend income", "qualifying taxable lumpsum income", then "qualifying taxable life relief income" - because that is the order in which HMRC assesses them. The first, by the way, is a grab-bag for anything not included in the other four categories, e.g. wages, pensions - and Benefit in Kind.

    You did ask
    • SuperHan
    • By SuperHan 5th Jan 18, 10:03 PM
    • 2,074 Posts
    • 1,229 Thanks
    SuperHan
    Thanks Polymaff (you are right, its not tax free but a personal allowance).


    So I truly understand it, would my figures be something like this:
    £11,500 = Personal Allowance
    £82 = 0%
    £33,500 = 20%
    £105,000 = 40%


    Also what do I do with company car (if the BIK value is £3,140 and thus 40% tax liability would be £1,256, do I treat the £3,140 as income).
    Originally posted by singhini
    Still not quite how it works.

    It's a techy point, but the 0% band overlays your highest rate of tax. So you have

    Personal Allowance at 0%
    £33,500 at 20%
    £108,140 at 40%
    £82 at 0%

    And you have £8,278 of the 40% band remaining (as £82 of it is used up by your dividends, although they are taxed at 0%). It matters when you are near to the next tax rate.
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