ProperCharlie

Could anyone explain to me how dividends are taxed? (i've spent 20 minutes on the inland revenue website but am none the wiser)

basically what I can't understand is the relationship between the 10% "tax credit" and the income taxation at 32.5%. Could someone tell me, for example, how much tax I would have to pay if i recieved, say, £10k in a dividend payment

tia.

Charlie

Chip

PC,
I had 2 divis through yeaterday. The tax on them works out at 10%.

Chip.

ProperCharlie

Chip - but surely that can't be the total amount of tax you have to pay, assuming that you declare them and you are a higher rate income tax payer?

Chip

Ill tell you what I had.

Dividend 1 was £52.13 after taxation Tax paid £5.70

Dividend 2 was£7.21 after taxation Tax paid £0.80

Chip.

GaryK

Surely it just counts as personal income, If you declare how much you have received it goes against your personal allowance at the end of the year and you pay 25/40% depending on what the total is.

Thats what my accountant has done for years. Only way you can get around it is pay divvies to your wife/girlfriend if they are lower rate/non-working people.

Gary

Chip

Apparently you have to declare your divis on your tax return form if you get one. I dont but I do pay highertax.

Chip.

Chip

My divis have never been taxed at 40%.

Chip.

ProperCharlie

Chip - I see; better say no more about it then

GaryK - it seems as though the tax that shows on Chip's form is the tax that is considered to have been paid by the company. Thus if you recieve £10, the "tax credit" of 10% has been taken into account already, and you have to pay 32.5% on the remaining - i.e. £3.25.

Oh well.

douglasb

Mainly agree with GaryK. However, I think that if you pay basic rate tax, you have no more tax to pay - the 10% tax credit is all. If you pay higher rate tax, you have the difference between 40% of the gross dividend and what has already been credited still to pay.

Doug

Chip

See here:

http://www.inlandrevenue.gov.uk/rates/savings.htm

Chip. Sorry, cant do a link.

ProperCharlie

i'm off to have a look

Chip

How do you do that anyway. One favour deserves another after all.

Chip

ProperCharlie

like this:

[ url =http://www.inlandrevenue.gov.uk/rates/savings.htm
]i'm off to have a look[ / url ]

take out the spaces. basically you type url= in square brackets and then copy the address, close the brackets, enter the text that yo want to be clickable, then put /url in square brackets.

it's a lot easier than paying my tax bill

Chip

Nice one.

Chip.

Bas

The tax deducted at source on dividends is 10% of the gross dividend. If you are a basic rate taxpayer, you have no further liability.

The higher rate tax on dividends is 32.5% of the gross dividend so if you are a higher rate taxpayer you have a further 22.5% of the gross dividend to pay through your self assessment tax return.

An easier way to look at it is that if you are a higher rate taxpayer, you have an additional liability on your dividends of 25% of the net amount you receive in your pocket intially.

There is a reason for the odd tax rates (32.5%/10%) but I'm not sure you want to be bored with the details

Bas

Bas

ProperCharlie

To answer your original question, if you are a higher rate taxpayer and you received a dividend payment of £10k, your additional liability will be £2,500

Bas

ProperCharlie

Bas - so I only have to pay in tax £2.50 on a recieved dividend of £10? That would be pretty handy as I was assuming I had to pay £3.25 on the tenner.

ProperCharlie

ahh you got their first! well that is quite good news! normally you find out that you have to pay *more* tax than you thought.

cheers.

Bas

Yep that's right

Bas

ProperCharlie

cool - i'm 2.5 grand better off than I thought I was

/rushes off the beer shop

Bas

Doh!!!

Rearrange these posts in a random order!

Diesel

I reckon that's sorted... Anyone know if you can put all brokers costs and fees against tax? I note the Amex Sharepeople broker service I use charge for normal transactions but also charge a monthly 'holding fee' or something...

D

carl

It works like this: first you have to 'gross up' the dividend for tax purposes. You do this by dividing the dividend by 0.9. So if you've got a div of £1,000, 'grossed up' this is £1111.11. As far as earnings for tax purposes goes, your dividend is £1111.11 so if you were earning £35,000 as salary, your actual gross earnings for the year are now £36,111.

Right, now you pay tax on £1111.11 at 10% or 32.5% according to whether you're a basic rate or higher rate taxpayer. If the div takes you across the boundary, you pay part at 10% and part at 32.5%.

So if you're a basic rate taxpayer you now owe the IR £111.11, and if you're a higher rate taxpayer you owe £361.11. But you've got a 10% tax credit (of the gross dividend) which is £111.11 so effectively you've "already paid" that bit. So you take £111.11 off what you owe, which means if you're basic rate you now owe nothing and if you're higher rate you owe £250, the latter of which is the 25% that somebody else mentioned.

Tiggs

as above

fast bloke

Carl - Until two minutes ago I always thought this was a very simple concept

Bas

Carl - I was trying to keep things simple for these guys

Bas

You can set transaction fees for buying and selling shares against any capital gain that you make when you come to sell them, but the holding fee wouldn't be allowable as it doesn't relate to the actual buying/selling

Bas