Dividend and savings tax

[stphnstevey]

I am trying to fathom dividend and savings tax. I realise they are taxed as the top slice of your income, but which first ie which is at the very top!

For example, if for tax year 08/09 I earned salary taking me to £40K (under the £40835 threshold for higher rate tax).

In the same year I earned:
£1000 Gross dividend
£1000 Savings Interest

Higher rate band for dividend's is 22.5% and savings 40%.

Which of savings or dividend would use up my remaining £835 basic rate allowance?

a) dividend - £835 0% and £165 at 22.5%. Savings - £1000 at 40%
b) savings - £835 20% and £165 at 40%. Dividend - £1000 at 22.5%

Hope that makes sense?

[taxattack]

I am trying to fathom dividend and savings tax. I realise they are taxed as the top slice of your income, but which first ie which is at the very top!

For example, if for tax year 08/09 I earned salary taking me to £40K (under the £40835 threshold for higher rate tax).

In the same year I earned:
£1000 Gross dividend
£1000 Savings Interest

Higher rate band for dividend's is 22.5% and savings 40%.

Which of savings or dividend would use up my remaining £835 basic rate allowance?

a) dividend - £835 0% and £165 at 22.5%. Savings - £1000 at 40%
b) savings - £835 20% and £165 at 40%. Dividend - £1000 at 22.5%

Hope that makes sense?

Dividends are the top slice.

Chris

[stphnstevey]

I have seen that said about savings also - are dividends taxed after savings and salary?

[taxattack]

I have seen that said about savings also - are dividends taxed after savings and salary?

Correct.

Chris

[DIY Accounting]

IF you haven't used up your personal tax allowance yet below the 40 percent tax threshold the dividend tax is 10 percent and so no tax payable as you receive a 10 per cent dividend tax credit.

Upper rate tax threshold is 34,800 above your personal allowance

[stphnstevey]

So (b) is correct.

If salary PLUS savings pushes you over the higher rate threshold, then you pay 22.5% on the dividend