Insight Strategic Associates can help taxpayers in the Shoeburyness, Essex area with queries you have regarding dividends – here is an overview of the new Dividend Allowance scheme...
A person does not have to pay tax on the first £2,000 of dividend income, regardless of the level of non-dividend income. Tax is charged on dividends received over £2,000 at the following rates:
- 7.5% on dividend income within the basic rate band
- 32.5% on dividend income within the higher rate band
- 38.1% on dividend income within the additional rate band.
The Dividend Allowance does not reduce total income for tax purposes, and dividends within the allowance still count towards the appropriate basic or higher rate bands. They may therefore affect the rate of tax payable on dividends received in excess of the £2,000 allowance.
Example 1
This is a quite straightforward example, based on 2019-20 tax rates and allowances, showing the taxable amounts after allocating the relevant allowances to the two types of income.
| |
Non-Dividend Income
£ |
Dividend Income
£ |
|
|
18,000
|
22,000
|
|
Dividend Allowance
|
-
|
2,000
|
|
Personal Allowance
|
12,500
|
-
|
|
Taxable at basic rate
|
5,500 (20%)
|
20,000 (7.5%)
|
Example 2
This example is more complicated, in that it splits the dividend allowance into two - £1,500 to use up the balance of the basic rate band and £500 to 'eat into' the higher rate band.
| |
Non-Dividend Income
£ |
Dividend Income
£ |
|
|
48,500
|
9,000
|
|
Personal Allowance
|
12,500
|
-
|
|
Dividend Allowance to basic rate limit
|
-
|
1,500
|
|
Dividend Allowance higher rate band
|
-
|
500
|
|
Taxable at basic rate
|
36,000 (20%)
|
-
|
|
Taxable at higher rate
|
-
|
7,000 (32.5%)
|
Insight Strategic Associates can advise businesses in the Shoeburyness, Essex area on a range of tax issues relating to dividends. Please contact us for more information.