New Dividend Taxs UK

Hi, So what are we thinking about the new tax on dividends n the UK?

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It’s only impactful outside of an ISA so makes no difference to me

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Do you think it will effect UK stocks which in turn could then impact your ISA?

Since this is in 2022 I can see a big rise in shares then maybe a big sell off who knows though how much this will really effect people.

https://amp-ft-com.cdn.ampproject.org/v/s/amp.ft.com/content/962655b1-8bb6-4c73-8849-c5d1b90e4776?amp_js_v=a6&amp_gsa=1&usqp=mq331AQKKAFQArABIIACAw%3D%3D#aoh=16310406853457&csi=1&referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%1%24s&ampshare=https%3A%2F%2Fwww.ft.com%2Fcontent%2F962655b1-8bb6-4c73-8849-c5d1b90e4776

If you’re earning over £2000 a year in dividends you should really have an ISA.

I think 1.25% has been picked as Goldilocks zone, to raise enough to justify the headlines and low enough to change behaviour.

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Yeah I lacked information to be honest and I don’t have anywhere near that kind of cash coming in through dividends.

They state on the financial Times (the link in my last post) stating investors think its a kick in the teeth and people’s retirement funds will be taking a hit. I was trying to wonder why if that tax won’t effect them if its in a ISA account.

Would this be because maybe less people will put money into dividend stocks which then in turn effect the pension savers?

Sorry still new and learning so just interested.

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It’s pretty much irrelevant for investors. Nobody will change their behaviour because they pay 1.25% more tax on something - especially because most people are either below the threshold or use an ISA. And sure as hell nothing and nobody will ‘take a hit’.

It’s more directed toward self employed workers that pay themselves through ‘dividends’ and are so taxed as well and not just employees.

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Sweet thanks for the repliy.

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they killed this with ir35 years back and they just shored it up fully at the start of this year. Nearly impossible to find contracts outside of ir35.

I am mostly a div investor.

Dividends seriously supplement my income, which combined is below the 12 grand tax bracket. It means I can semi retire. I have not read the 1.25% div tax details. Shall do at some point, and hope I won’t get stung for taking responsibility for myself and making my money work for me. Oh wait, maybe I should just get a ub40…

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It’s just a added 1.25 onto any previous tax brackets you were on so for me thst would be 7.5 and now it’s 8.75

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Is the tax taken out from the dividend before it reaches the shareholder?

The tax is paid in the same way you pay it just now if you exceed the £2000 yearly limit, it’s just an extra 1.25% you need to pay.

Example

You get £3,000 in dividends and earn £29,570 in wages in the 2020 to 2021 tax year.

This gives you a total income of £32,570.

You have a Personal Allowance of £12,570. Take this off your total income to leave a taxable income of £20,000.

This is in the basic rate tax band, so you would pay:

  • 20% tax on £17,000 of wages
  • no tax on £2,000 of dividends, because of the dividend allowance
  • 7.5% tax on £1,000 of dividends (This changes to 8.75%)

Taken from the Government website.(if you live in Scotland this would be calculated a touch differently)

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Well posted :+1: Of course if you have an ISA it really shouldn’t affect you unless you have a serious amount of stocks paying out. I never thought about the below so well done @SebReitz

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Yes but some contractors were massively taking advantage of the legal loopholes before IR35 - my ex was on a six-figure salary (most of it in dividends) yet somehow paid the same (or less) tax than I did (I was earning less than a 3rd of what he was) - the government just made it a bit more fair (plus rake in extra in taxes of course!)

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They can tax the 3p I received last year if they really want to.

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Every little helps :joy:

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Agreed, but 1.25% of £20,000 is £250. It is a significant amount for me.

And my ISA is full, so the rest is taxed. This year’s ISA limit is twenty grand.

So 20,000 is an isa, and I have investments outside the ISA (mostly with FT). So I will lose 250 quid on the 20,000 when I het there, and I actually want the 250 quid not give it away to any government.

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Do you get over £20K in dividends from stocks outside your ISA?

I have to say if someone is making that much just in dividends I haven’t much sympathy for them paying an extra £250 tax

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This is really aimed at Directors/Contractors who take their earnings mostly as dividends from companies they have control of (a small nominal wage and then the rest of drawings are dividends as the tax rate is lower). For those people it is significant, but as you point out not particularly onerous.

It won’t really matter to people who earn dividends from shares as most of those are in a tax-free wrappers like ISAs or SIPPS anyway, so shouldn’t be too significant for investors using freetrade.

It is very odd that earnings from labour are taxed differently than earnings on capital - IMO they should have the same tax rates, so this and other changes are an overdue adjustment in that direction. Also IMO regressive to add to NI instead of adding to income tax but that’s another discussion.

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