DIVIDEND TAX RATES 2013 - 2014

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Dividend tax rates 2013-14

There are three different Income Tax rates on UK dividends. The rate you pay depends on whether your overall taxable income (after allowances) falls within or above the basic or higher rate Income Tax limits.

The basic rate Income Tax limit is £32,010 and the higher rate Income Tax limit is £150,000 for the 2013-14 tax year.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

Tax on savings income

There are four different Income Tax rates on savings income: 10 per cent, 20 per cent, 40 per cent or 45 per cent. The rate you pay depends on your overall taxable income.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

How dividends are paid

When you get your dividend you also get a voucher that shows:

• the dividend paid - the amount you received
• the amount of associated 'tax credit' - see next section

If you have agreed to get your dividends paid electronically you may get your dividend voucher in paper or electronic form.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

Understanding the dividend tax credit

Companies pay you dividends out of profits on which they have already paid - or are due to pay - tax. The tax credit takes account of this and is available to the shareholder to offset against any Income Tax that may be due on their dividend income.

When adding up your overall taxable income you need to include the sum of the dividend(s) received and the tax credit(s). This income is called your dividend income.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

How tax credits are worked out

The dividend you are paid represents 90 per cent of your 'dividend income'. The remaining 10 per cent of the dividend income is made up of the tax credit. Put another way, the tax credit represents 10 per cent of the dividend income.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

Paying tax on dividend income

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

If you pay tax at the basic rate:

You have no tax to pay on your dividend income because the tax liability is 10 per cent - the same amount as the tax credit - as shown in the earlier tables.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

If you pay tax at the higher rate:

You pay a total of 32.5 per cent tax on dividend income inclusive of tax credit where this falls above the basic rate Income Tax limit (£32,010 for the 2013-14 tax year). In practice, however, you owe only 25 per cent of the dividend paid to you after the tax credit has been taken into account.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

If you pay tax at the additional rate:

Between 6 April 2010 and 5 April 2013 you pay a total of 42.5 per cent tax each year (37.5 per cent from 6 April 2013) on dividend income that exceeds the higher rate Income Tax limit (currently £150,000). But because the first 10 per cent of the tax due on your dividend income is already covered by the tax credit, in practice for tax years from 6 April 2010 to 5 April 2013 you owe only 36.1 per cent of the dividend paid to you (31.1 per cent from 6 April 2013).

Note that dividend income, like savings income, is taxed after your non-savings income - for example, wages and self-employment profit - at your highest tax rate. For example, if it falls both sides of the £32,010 basic rate tax limit, it will be taxed partly at 10 per cent (and covered by the tax credit) and partly at 32.5 per cent (less the 10 per cent tax credit).

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group

Declaring dividend income on your Self Assessment tax return;

If you normally complete a tax return you'll need to show the dividend income on it.

If you don't complete a tax return, but you have higher rate of tax to pay on your dividend income, you should contact us.

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Simone Fazzari & Barry Smith Law Offices 

Simone Fazzari & Barry Smith Law Group