I have an FreeTrade ISA, and I receive a substantial amount of dividends varying each month.
I totally understand one doesn’t have to pay taxes or even declare dividend income received in an ISA to the taxman, but i plan to purchase a house in a years’ time, and when applying for a mortgage agreement in principle, on the mortgage application form, they ask if you’ve received any other income, apart from salary.
I’d like to put my substantial dividend income down on the application form… But when proceeding with the mortgage application, they require proof - HRMC records of your declared income.
So can i declare my ISA income to the taxman (just to have it on record), and still not get taxed?
I think using a mortgage broker or seeking professional financial advice would be the best action in order to assess your options. I too want to use my ISA to buy a house but will probably use it for the deposit.
Here is an answer from a rather old guardian article I found on Google:
Yes, lenders are willing to offer mortgages based on a mixture of incomes. However, they do like predictability so are less keen to lend against an income which is likely to fluctuate. So it is highly unlikely you will find a lender willing to take your net dividend income of £13,000 into account when assessing your mortgage application.
If you want to buy somewhere I suspect you are going to have to use some of the capital from your Isa. This may not be the hardship you seem to think it is, however, because what you would lose in terms of dividend income you will gain in not having to pay mortgage interest
From experience, proof doesn’t have to be from HMRC records, I just provide 6 months statements showing dividends and rental payments and also 3 months bank statements showing the income. But my divine and property income was only about 20% of my income, it may be different if dividends are a bigger proportion of the income.
Normally, for mortgage applications, dividend income means dividends paid from a company to the self employed person as taxed through self assement.
Dividend income from ISA/investments is unlikely to be accepted as income for affordability assement multiples. After all, you do not have controlling stake in business and cannot decide to pay out dividends. Lots of dividends are discretionary and do get cut or cancelled. For example HSBC dividends got cancelled in 2020.
Yeah but as I said, that was only a small portion of my total income, I also have main income and rental income. My other income was enough to afford the mortgage I just included divs to boost the odds.
I’ve never been asked for more than 6 months’ payslips and statements.