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Where Taxpayers and Advisers Meet

Tax on Dividends from Shares and ISA

Lextar
Posts: 6
Joined: Tue Sep 04, 2018 12:48 pm

Tax on Dividends from Shares and ISA

Postby Lextar » Thu Sep 06, 2018 8:38 am

After reading stuff from HMRC about tax on dividends, I'm still confused on how it works with Savings Allowance and the (possibly not so) recent changes.

I'm earning ~47k. I have shares in a standard account and also shares in an ISA account.

Are dividends in the ISA (paid out and not re-invested) taxable? I seem to get different answers on this one.

And how much dividends can be received before being taxed and how is the tax rate calculated?

Thanks

AGoodman
Posts: 1102
Joined: Fri May 16, 2014 3:47 pm

Re: Tax on Dividends from Shares and ISA

Postby AGoodman » Thu Sep 06, 2018 11:59 am

1. You can ignore everything within or coming from an ISA.
2. For 2018/19 you have a tax free dividend allowance of £2,000 (reduced from earlier years).
3. After that, it is treated as your top slice of income (i.e. at the highest rate you pay) - if you have no other income then it is:

£11,350 Personal allowance tax free
£ 2,000 Dividend allowance tax free
£34,500 Basic rate - 7.5% for dividends
+ Higher rate - 32.5% for dividends

JRG
Posts: 419
Joined: Wed Feb 03, 2010 4:40 pm

Re: Tax on Dividends from Shares and ISA

Postby JRG » Thu Sep 06, 2018 7:49 pm

For 2018/19 the Basic Personal Allowance is £11,850, not £11,350.

maths
Posts: 8034
Joined: Wed Aug 06, 2008 3:25 pm

Re: Tax on Dividends from Shares and ISA

Postby maths » Thu Sep 06, 2018 9:17 pm

Based on 47k earnings (and assuming no other income) then any dividend income in excess of 2,000 will be taxed at 32.5% (up to 2,000 taxed at 0%).

ISA dividends are exempt and thus ignored.

robbob
Posts: 2996
Joined: Wed Aug 06, 2008 4:01 pm

Re: Tax on Dividends from Shares and ISA

Postby robbob » Fri Sep 07, 2018 10:44 am

I would add a couple of comments here.

1. If you are claiming child benefit and would be subject to the child benefit tax charge, you will pay additional tax to the extent that the your income exceeds 50k - note dividend allowance doesn't exist as far as this extra tax is concerned so if salary = 47k and dividends of 4k will result in extra tax being due - income of 51k would result in 1/10 of child benefit received being charged as tax. Also if salary was 50k and dividend income was 2k then again tax would be charged.

2. current rules mean that sometimes tax calculations don't work out how one would expect them to work out based on the traditional way of looking at things, so very minor changes to income amounts can mean the tax is calculated in a completely different manner.


an example would be an individual for ye 5/4/2018 with

Salary 44k and dividend income of 6k

One would probably guess that 1k of dividends would be taxed at 32.5% - presuming correct tax has deducted at source from salary (6500) - resulting in £325 of extra tax and overall tax liability of £6825

The reality is that only £200 of extra tax is actually due - the saving can be made by allocating £1k of dividend income against the personal allowance - this is results in no dividend tax being due - saving £325 (the other 2k falls within the dividend allowance) and an extra 20% tax being due on 1k of salary costing £200 - net saving of £125. total tax liability £6700

very annoying but true

Lextar
Posts: 6
Joined: Tue Sep 04, 2018 12:48 pm

Re: Tax on Dividends from Shares and ISA

Postby Lextar » Fri Sep 07, 2018 11:34 am

Thanks. Luckily I only needed the basics (I got lost in the last post).

I got hit by the tax on dividends a couple of years ago before all the changes, so I gifted some to spouse and moved some into ISA so I currently don't hit anything near the 2K dividends.


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