Thanks to Bradley and Bored Senseless - just what I was looking for.
Cheers
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Reply to: Taxation Rates
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Previously on "Taxation Rates"
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Originally posted by bruceg13Thanks for that but it doesnt tell me the tax payable on dividends
But in brief - and to the best of my knowledge (I use an accountant to do my own)
The UK income tax threshold for 40% income tax is set at X.
Your salary is taxed first, at 0%, 10% and 22% up to 40%.
Once you have paid your salary if you have not yet earned X, you can take dividends to the value of (X-salary) and because of the tax credit on dividends you will owe no further income tax.
Any dividend income that takes your combined income over the 40% threshold will be taxed at the full dividend tax rate of 32.5% although with the tax crdedit this is actually 22.5%.
Bear in mind the following 3 things
1) You have to have first paid corporation tax on profits before you can declare dividends (or made allowances for this charge) this is 19%.
2) You can only declare dividends out of profit, if you are making a loss or the dividend would make you incur a real loss then you can't pay it
3) The 40% tax limit applies to all income streams i.e. salary, dividends, rental income, interest earned, other jobs.
AGAIN - Talk to an accountant
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Dividends
£32400 is the limit of the basic rate band for 2005/06
£4895 is the personal allowance for 2005/06
Assuming your salary is £4895 then this uses up the personal allowance
You can then pay £29160 dividends before paying any higher-rate tax
The tax sums work out as follows:
Dividends - cash in hand - £29160
Add:Tax Credit - £3240
Taxable Income - £32400
Tax Rate is 10% - £3240
Which is covered by the tax credit
If dividends were say £36000 cash in hand then the sums would be as follows:
Dividends - cash in hand - £36000
Add:Tax Credit - £4000
Taxable Income - £40000
In higher rate tax bracket - £7600 (£40000 - £32400)
In basic rate tax bracket - £32400
Tax Rate is 10% on dividends in basic rate tax bracket - £3240
Tax Rate is 32.5% on dividends in higher rate tax bracket - £2470
Total Tax - £5710
Less: Tax Credit - £4000
Tax Payable - £1710
or 25% of cash in hand dividend that strays into higher rate tax bracket
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Thanks for that but it doesnt tell me the tax payable on dividends
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Taxation Rates
Hello,
Can someone please tell me exactely how much in dividends I can take out per financial year until I hit the higher tax bracket?
I have heard I can take out £27k per year in dividends and after that am subject to 25% on any dividends after that.
This is of course in addition to a minimal directors salary and expenses claimed.
Thanks.Tags: None
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