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Where Taxpayers and Advisers Meet

Savings and Dividends tax allowances

Feds
Posts: 51
Joined: Wed Aug 06, 2008 4:10 pm

Savings and Dividends tax allowances

Postby Feds » Sat Mar 09, 2019 12:49 pm

Hi
One of my clients has the following income for 18/19: -

Dividends: £3,148
Bank Interest: £675
Pension income: £10,702

He calculated the £10,702 as being the most he could draw down tax free from his SIPP.

The pension will be incorporated by the personal allowance, leaving £1,148 of the pa remaining.
Will the savings or dividends use up this remaining £1,148 or can you now choose which to use first?

If we offset the savings against the pa first, then this means only £473 of the dividend is covered by the pa. Another £2,000 divi is within the divi allowance and the remaining £675 dividend taxed at 7.5%.
If we offset the dividends first, the whole dividends would be tax free (£1,148 within the pa and £2,000 dividend allowance). The £675 savings is then covered by the £1,000 savings allowance, so tax altogether avoided.

Thanks

D&C
Posts: 61
Joined: Thu Dec 22, 2016 10:04 pm

Re: Savings and Dividends tax allowances

Postby D&C » Sat Mar 09, 2019 9:37 pm

You can choose how to allocate the Personal Allowance in whatever way gives the smallest tax liability.

However your client cannot benefit from the savings nil rate (aka PSA) as this is not something which such low income individuals can use.

The savings income will fall to be taxed under the savings starter rate of tax, which is a tax rate of 0% (maximum of £5,000, reduced pound for pound by any wages, pension, rental etc which exceed the Personal Allowance).

And there is no dividend "allowance". It is a 0% tax band. Which makes a big difference to some but not to your client in 2018:19.

Feds
Posts: 51
Joined: Wed Aug 06, 2008 4:10 pm

Re: Savings and Dividends tax allowances

Postby Feds » Mon Mar 11, 2019 11:52 am

Thank you for this.


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