PinkDalek wrote:lizbubb wrote:[That income includes dividends from shares held outside an ISA. This amount is below the dividend tax limit so in theory not taxed, but because of the personal allowance reduction in practice it's effectively adding to my tax bill at 0.5 * higher rate. ...
How so and are you certain? I do understand the personal allowance restriction but not the impact of dividends if below £2,000.
Based on my SA tax calculations for the last few years, yes. Couldn't work out why I had additional tax to pay when my dividends were below the limit and everything else was PAYE, then realised it's the personal allowance going.
This from
https://www.gov.uk/tax-on-dividends, bold mine:
Example
You get £3,000 in dividends in the 2019 to 2020 tax year. The dividend allowance is £2,000, so this means you pay tax on £1,000 of your dividends.
Your other taxable income is £35,000. Add this to your dividends of £3,000 and your total taxable income is £38,000.
You pay a rate of 7.5% on £1,000 of dividends because your total taxable income is within the basic tax band.So the way I read that (and backed up by what actually happens with my tax return) the whole amount is considered taxable income, even though not all of it is taxed.
so, say I earn 100K salary. I'll pay 0% on 12,500, 20% on 37,500 and 40% on 50,000
Add in 2K dividends gives income of 102K. Although the 2K dividend income itself is untaxed, my income is 102K. As I lose £1 personal allowance for each £2 over £100K, I lose 1K allowance so the split for my 100K is now 0% on 11,500, 20% on 37,500 and 40% on 51,000
I would LOVE to be wrong about this though!