Does savings interest impact the amount of tax i pay on my dividend

[JohnLuke]

Hi Folks,

I am currently looking at taking a dividend out. I was concerned that i may pay 33.75% on my dividend if i am pushed over lower tax limits with savings interest.

I was going to take 12570 and £37700 as advised by my accountant. But I am also recieving £4223 from interest in savings. Does that mean that I am not taxed on the salary of 12570 because its my personal allowance and then taxed 8.75% on the dividend then 40% on the savings interest (after the 500 allwoance) because I am pushed in the higher tax bracket?

Or does it mean I will be taxed 33.75% on an element of the dividend because I have been pushed into the higher tax bracket?

Wondering whether i should take 37,000 minus the £4k in interest to keep me in the lower bracket - but trying to figure out how it affects the dividend.

Thanks

J

 

[Lisa Thomas]

Suggest you ask your accountant.

 

[Bobbo]

Impressive you already know how much interest you will be receiving in the 2025/26 tax year already and can plan so far ahead.

 

[JohnLuke]

My accountant told me to take the 37kk dividend.

Any other takers? I think it will be helpful for others to know too. I am sure its quite a common occurence.

 

[JohnLuke]

Impressive you already know how much interest you will be receiving in the 2025/26 tax year already and can plan so far ahead.

Projected at 4.25%

 

[MyAccountantOnline]

Your interest will be covered by the savings allowance/starting rate for savings so no tax on that.

 

[MyAccountantOnline]

HMRC have a calculator you can use here

 

[JohnLuke]

I got this . Interesting results. So seems Id have to reduce dividend by 4k to avoid going into the higher tax of 33.75%. Good to know about the starting rate for savings of £5,000



You do not need to pay tax on your savings interest of £4,223 because it is covered by your tax-free allowance.

Dividend income of £37,700

Rate	Taxable amount	Tax due
Basic (8.75%)	£32,977	£2,885.48
Higher (33.75%)	£4,223	£1,425.26
Additional (39.35%)	£0	£0.00
Total	£37,200	£4,310.74

 

[MyAccountantOnline]

Id have to reduce dividend by 4k to avoid going into the higher tax of 33.75%. ...

Yes but do take advice from your accountant - they will have all relevant information and can advise you fully and properly.

 

[JohnLuke]

Accountant agreed with approach!

 

[numbersrule]

Can the £5,000 Starting Rate for savings interest be used when there is maxed out Dividend Income from your place of work?

 

[JohnLuke]

Not sure, ??

 

[DontAsk]

Can the £5,000 Starting Rate for savings interest be used when there is maxed out Dividend Income from your place of work?

Yes.

In your case of salary equal to your personal allowance, your savings interest will not be taxed due to the £1k savings allowance and the starting rate for savings limit of £5k being greater than your interest.

 

[MikeJ]

I'll say this because it seems to confuse a lot of people.

If you go into the higher rate tax bracket by £1000, you only pay the higher rate on that £1000, not on all your income.