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  • FIRST POST
    • sanfairyanne
    • By sanfairyanne 13th Jun 19, 6:03 PM
    • 62Posts
    • 7Thanks
    sanfairyanne
    Tax on dividends
    • #1
    • 13th Jun 19, 6:03 PM
    Tax on dividends 13th Jun 19 at 6:03 PM
    I believe the 2019/20 tax year allows for a 12,500 capital gains tax allowance.
    I wonder if profit from dividends are considered a capital gain in exactly the same way as say a gain from the sale of stock.

    I believe Im right in saying that there is a dividend allowance of 2000. As a basic rate taxpayer I understand Id pay 7.5% on dividend profits above 2000.

    My question is whether I can offset some capital losses against BOTH gains from stock and gains from dividends?

    Im assuming this:

    If 10,000 was made from dividends youd pay 7.5% on 8000.
    If 10,000 was made from the sale of stock Id have a total of 18,000 minus CGT allowance at 12,500 = taxable gains of 5,500. However, if I sell say WPCT at a loss of 5000 Id only have to pay tax on 500.

    Is this.correct?

    Many thanks in advance
Page 1
    • Reed_Richards
    • By Reed_Richards 13th Jun 19, 6:28 PM
    • 589 Posts
    • 362 Thanks
    Reed_Richards
    • #2
    • 13th Jun 19, 6:28 PM
    • #2
    • 13th Jun 19, 6:28 PM
    I wonder if profit from dividends are considered a capital gain in exactly the same way as say a gain from the sale of stock
    Originally posted by sanfairyanne
    No dividends are not capital gains; you know that really don't you?

    I believe Im right in saying that there is a dividend allowance of 2000
    Originally posted by sanfairyanne
    So how could that be if dividends were considered capital gains?
    Reed
    • bowlhead99
    • By bowlhead99 13th Jun 19, 6:29 PM
    • 9,356 Posts
    • 17,014 Thanks
    bowlhead99
    • #3
    • 13th Jun 19, 6:29 PM
    • #3
    • 13th Jun 19, 6:29 PM
    I believe the 2019/20 tax year allows for a 12,500 capital gains tax allowance.
    Originally posted by sanfairyanne
    No, the capital gains exemption is only on the first 12000 of capital gains less capital losses
    I wonder if profit from dividends are considered a capital gain in exactly the same way as say a gain from the sale of stock.

    I believe I’m right in saying that there is a dividend allowance of 2000. As a basic rate taxpayer I understand I’d pay 7.5% on dividend profits above 2000.

    My question is whether I can offset some capital losses against BOTH gains from stock and gains from dividends?

    I’m assuming this:

    If 10,000 was made from dividends you’d pay 7.5% on 8000.
    If 10,000 was made from the sale of stock I’d have a total of 18,000 minus CGT allowance at 12,500 = taxable gains of 5,500. However, if I sell say WPCT at a loss of 5000 I’d only have to pay tax on 500.

    Is this.correct?
    No it's not correct.

    Dividends are not taxed like a gain on the sale of stock. They are taxed through income tax at a special rate (7.5% as BR taxpayer, more if your total income including the dividends takes into a higher rate tax bracket) after you have used up your personal income tax allowance and your special 0% rate on the first 2000 of dividends.

    Whereas sales of assets are taxed through capital gains tax. You deduct losses from gains to get your net gains, and you have an annual exemption on the first 12000 (not 12500) of gains

    You can't use your spare capital gains exemption to avoid paying income taxes on your dividends.

    In the example above you have 10000 from the sale of stock less 5000 losses on the WPCT sale so the overall net gains are only 5000. That 5000 of net gains is entirely covered by your 12000 annual exemption, but you only need 5000 of the CGT exemption because you only have 5000 of gains. There is no CGT to pay as a result.

    But if you have 10000 of dividends, you'll still be paying tax on them: 0% on the first 2000 and 7.5% on the last 8000 (assuming the dividend income when added together with your interest income and salary income and business income and pension income doesn't take you into higher rate tax bracket)
    Last edited by bowlhead99; 13-06-2019 at 6:33 PM.
    • polymaff
    • By polymaff 13th Jun 19, 6:48 PM
    • 2,978 Posts
    • 1,375 Thanks
    polymaff
    • #4
    • 13th Jun 19, 6:48 PM
    • #4
    • 13th Jun 19, 6:48 PM
    My question is whether I can offset some capital losses against BOTH gains from stock and gains from dividends?
    Originally posted by sanfairyanne

    Your username hints at the chances that you'll get THAT past HMRC...
    • sanfairyanne
    • By sanfairyanne 13th Jun 19, 8:11 PM
    • 62 Posts
    • 7 Thanks
    sanfairyanne
    • #5
    • 13th Jun 19, 8:11 PM
    • #5
    • 13th Jun 19, 8:11 PM
    Many thank I can see that I am getting confused with income tax allowance and capital gains tax allowance. May I just ask; taking aside any capital gains. If my only income is from UK dividends then I assume I can use my full personal allowance of 12,500 before I start paying tax at 7.5% on dividends.
    Last edited by sanfairyanne; 13-06-2019 at 8:27 PM.
    • Dazed and confused
    • By Dazed and confused 13th Jun 19, 8:24 PM
    • 5,388 Posts
    • 2,860 Thanks
    Dazed and confused
    • #6
    • 13th Jun 19, 8:24 PM
    • #6
    • 13th Jun 19, 8:24 PM
    I believe I’m right in saying that there is a dividend allowance of 2000.
    No, there is no "allowance" for dividends.

    Unless covered by your Personal Allowance dividends will be taxed at one of the dividend tax rates of 0%, 7.5%, 32.5% or 38.1%.

    A maximum of 2,000 is taxed at 0% and there are circumstances where dividends taxed at 0% mean your overall tax bill increases despite the dividends being taxed at 0%.
    • sanfairyanne
    • By sanfairyanne 13th Jun 19, 8:46 PM
    • 62 Posts
    • 7 Thanks
    sanfairyanne
    • #7
    • 13th Jun 19, 8:46 PM
    • #7
    • 13th Jun 19, 8:46 PM
    Dazed and Confused

    “A maximum of 2,000 is taxable at 0%”

    Maybe “allowance” was the wrong word, but they sound like one and the same. I.e you make a bundle on dividends but they’re only taxable above 2000. And this is considered income tax and not a capital gain.
    • Dazed and confused
    • By Dazed and confused 13th Jun 19, 8:53 PM
    • 5,388 Posts
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    Dazed and confused
    • #8
    • 13th Jun 19, 8:53 PM
    • #8
    • 13th Jun 19, 8:53 PM
    Not being taxable and being taxed at 0% are two completely different things.

    Imagine you had a taxable salary of 100,000 and no other income. You would get a Personal Allowance of 12,500 (current tax year).

    Add in 2,000 of dividend income taxed at 0% and your Personal Allowance would be reduced to 11,500. Adding 400 to your tax overall tax bill. So dividends taxed at 0% actually incur a 20% tax increase!

    Similar things affect some people in a Child Benefit household and some who can still get Married Couple's Allowance.
    • sanfairyanne
    • By sanfairyanne 13th Jun 19, 10:24 PM
    • 62 Posts
    • 7 Thanks
    sanfairyanne
    • #9
    • 13th Jun 19, 10:24 PM
    • #9
    • 13th Jun 19, 10:24 PM
    Dazed and Confused

    I’m really dazed and confused. You wrote:

    “Add in 2,000 of dividend income taxed at 0% and your Personal Allowance would be reduced to 11,500. Adding 400 to your tax overall tax bill. So dividends taxed at 0% actually incur a 20% tax increase!”.

    I don’t understand how you reach the figure of 11,500. Neither do I understand how you reach 400. Sorry to seem so dumb but I’m really confused.
    • LobsterMemory
    • By LobsterMemory 14th Jun 19, 5:52 AM
    • 246 Posts
    • 184 Thanks
    LobsterMemory
    Why worry about it as it doesn't seem to reflect your situation

    Suggest you focus on your 2nd question and don't assume anything when you ask it

    Try something like

    My income is x of dividends, y of interest and z of any other income. Can you tell me how this is taxed please
    • Reed_Richards
    • By Reed_Richards 14th Jun 19, 6:27 AM
    • 589 Posts
    • 362 Thanks
    Reed_Richards
    I dont understand how you reach the figure of 11,500. Neither do I understand how you reach 400. Sorry to seem so dumb but Im really confused.
    Originally posted by sanfairyanne
    See https://www.moneysavingexpert.com/banking/tax-rates/
    But Dazed and Confused has cited an particular example in order to make a point; hopefully that example will not apply to you. Follow the advice from LobsterMemory.
    Reed
    • 20SmthngSver
    • By 20SmthngSver 14th Jun 19, 9:16 AM
    • 345 Posts
    • 111 Thanks
    20SmthngSver
    It means that for the 2019/2020 tax year, your tax free allowance on income is effectively 14,500 (12,500 for the Personal Tax Allowance and 2,000 for the Dividend Allowance). Anything above this 14,500 within the Basic Rate Tax Band is taxed at 7.5%. Plus, you get 1,000 Personal Savings Allowance (PSA), and up to 20,000 Individual Savings Allowance (ISA)
    • ColdIron
    • By ColdIron 14th Jun 19, 9:21 AM
    • 5,442 Posts
    • 7,470 Thanks
    ColdIron
    and up to 20,000 Individual Savings Allowance (ISA)
    Originally posted by 20SmthngSver
    If you open your window and listen carefully you will hear D&C's head explode
    • bowlhead99
    • By bowlhead99 14th Jun 19, 9:31 AM
    • 9,356 Posts
    • 17,014 Thanks
    bowlhead99
    If you open your window and listen carefully you will hear D&C's head explode
    Originally posted by ColdIron
    Don't forget the DFA - you can bring 4 litres of wine through customs when returning from a non-EU country without paying duty, because of the Duty Free Allowance.
    • pinnks
    • By pinnks 14th Jun 19, 9:46 AM
    • 746 Posts
    • 1,559 Thanks
    pinnks
    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.
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    • 20SmthngSver
    • By 20SmthngSver 14th Jun 19, 9:49 AM
    • 345 Posts
    • 111 Thanks
    20SmthngSver
    Why is that?
    • Dazed and confused
    • By Dazed and confused 14th Jun 19, 9:59 AM
    • 5,388 Posts
    • 2,860 Thanks
    Dazed and confused
    Thank you ColdIron

    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 c1700 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).
    Last edited by Dazed and confused; 14-06-2019 at 10:05 AM.
    • 20SmthngSver
    • By 20SmthngSver 14th Jun 19, 10:42 AM
    • 345 Posts
    • 111 Thanks
    20SmthngSver
    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.
    Originally posted by pinnks
    I know, thanks.
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