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Where Taxpayers and Advisers Meet

Dividends - top top slice or not?

Posts: 5
Joined: Wed Feb 25, 2015 11:08 pm

Dividends - top top slice or not?

Postby PtW2205 » Sun Jun 21, 2020 7:01 am

Hello - I would be so grateful for your insights...
I refer to my personal income tax calculation of 2018/2019. I have employment income of £68k, interest income of £1k, and dividend income of £9k. I am then a higher rate tax-payer and would anticipate seeing the top slice of income in my calculation to be the £7k dividend income (£9k - £2k), taxed at 32.5%. However, £2k of my dividend income has been taxed at 0%, £7k taxed at 7.5% and then it's my employment income is the top slice at 40%.
HMRC advise the rule: "Any employment income over the upper rate band of £46,350 is subject to being taxed at the higher rate of 40%. Any dividend income received over the amount of £36,000 is subject to the upper rate band of 32.5%."
I was not aware there were two upper rate bands! Am I going mad (always a distinct possibility!)? I would be so grateful for someone's clarification. I have googled the life out of this but to no avail... Thank you so much!

Posts: 5
Joined: Wed Feb 25, 2015 11:08 pm

Re: Dividends - top top slice or not?

Postby PtW2205 » Tue Jun 30, 2020 5:49 pm

This sounds daft as posting a reply to my post - but really interested as no-one has picked this up. I hasten to add I don't say this in any demanding way; I am just intrigued as I thought someone would very quickly know where I was likely going wrong. So grateful for any input. My reply from HMRC (as you still have to write a letter as I couldn't get WebChat) took over 5 months to arrive. I am very reticent to write back then and say that I don't understand their reply. Thank you!

Posts: 3168
Joined: Sat Feb 01, 2014 3:26 pm

Re: Dividends - top top slice or not?

Postby bd6759 » Tue Jun 30, 2020 9:45 pm

I agree.

Your salary 68,000 less PA 11,850 is £56,150.
This is taxed £34,500 @ 20% = £6,900, and 21,650@ 40% = £8,660. Total tax on salary £15,560

Interest £1,000 less savings allowance £500. Tax £500 @ 40% = £200.

Dividends £2,000 @ 0% and £7,000 @ 32.5% = £2,275.

Total tax £18,035

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