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Where Taxpayers and Advisers Meet

Dividend allowance issue

briview
Posts:3
Joined:Mon Sep 13, 2021 9:02 am
Dividend allowance issue

Postby briview » Mon Sep 13, 2021 10:55 am

Hi there

I'm doing my self assessment for 20/21 and have observed an oddity regarding the tax implications for a small (£2k) dividend which I understood to be within the allowance and therefore tax free as described in this article https://www.gov.uk/tax-on-dividends. A quote from that article

"You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance."

The issue I am facing is that the dividend is being included in the 'total income' amount and therefore is playing a part in reducing my personal allowance as my salaried taxable income is slightly over 100k. So whereas I thought there would be no tax implications of the 2k dividend, it is in fact being taxed at 20%.

Anything I can do, or is it 'just the way it is'?

Thanks

Brian

D&C
Posts:50
Joined:Mon Nov 25, 2019 11:35 pm

Re: Dividend allowance issue

Postby D&C » Mon Sep 13, 2021 6:50 pm

Contrary to what you have read on gov.uk there is no "allowance" specifically for dividend income.

There is a 0% tax rate where the first £2,000 of dividend income (in 2020/21 tax year) is taxed at 0%.

Taxable dividend income is part of your adjusted net income and as such does matter when it comes to your Personal Allowance.

So you can easily have £2,000 of divided in one taxed at 0% which result in an increase of £400 to your overall tax liability (loss of £1,000 Personal Allowance meaning £1,000 income is taxed at 40%).

Tax doesn't have to be taxing. But it often is!

ben_power
Posts:62
Joined:Tue Feb 27, 2018 8:34 pm

Re: Dividend allowance issue

Postby ben_power » Mon Sep 13, 2021 10:42 pm

Subject to Annual and Lifetime Allowance rules you could consider making an additional pension contribution.

D&C
Posts:50
Joined:Mon Nov 25, 2019 11:35 pm

Re: Dividend allowance issue

Postby D&C » Mon Sep 13, 2021 11:43 pm

As the op is referring to completion of their 2020/21 return additional pension contributions aren't possible.

You can only ever make contributions during the tax year in question, it isn't possible to carry back pension contributions and hasn't been for a long time now.

someone
Posts:521
Joined:Mon Feb 13, 2017 10:09 am

Re: Dividend allowance issue

Postby someone » Tue Sep 14, 2021 11:17 am

If you make charitable donations then you can think about carrying some of them back, especially if you can then use pension this year that you missed the chance for last year.

I believe you *have* to do gift aid carried back tax claims on your first submission - you cannot correct the value later and it *has* to be whole donations so if, for example, you give 100 per month to charity[1] then your carried back amount must be a multiple of 100 and it must be donations already made (so leave submitting your tax return to Jan if you need to)

I generally try to avoid carrying back charitable donations because it's a pain to get right (if it's not something you do all the time) but sometimes, especially if you're very close to some of the "penal" rate changes, it can save a lot of tax by moving them between years (or alternatively, if you don't normally make donations, it can make a fairly substantial donation to a charity cost you a lot less in net pay)

[1] Plus all the faf around whether the 100 is your net or gross contribution. I think HMRC deliberately try to make it difficult to get charity/pension figures correct by apparently randomly deciding that one should be without tax relief and the other with.

briview
Posts:3
Joined:Mon Sep 13, 2021 9:02 am

Re: Dividend allowance issue

Postby briview » Tue Sep 14, 2021 8:23 pm

Thank you for the feedback on this. I was tempted to call the HMRC to point out how misleading their reference material is but decided that for the price of £400, I'd let sleeping dogs lie ;-)


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