The Lemon Fool

Hi everyone

Question.

My wife earns £8400 per year in her job and is a non-taxpayer and does not make NI contributions.

Am I correct in thinking that she would therefore have £4170 allowance left to be paying 0% tax on dividends she makes from stocks each year?

And, would it be also correct that she would NOT need to complete a self-assessment as long as the dividends were less than £4170, this keeping her in the zero tax band.

The reason I am asking is that I am thinking that having used up our ISA allowance and pension contribution, it is worthwhile posting excess funds into her general investment account to buy stocks than mine.

Not, I am tapered and thus any dividend income I make lowers the amount I will contribute to my pension.

TIA

Del

No. The 4k or so personal allowance she has left can only be used on earned income - not dividend income, but there is seperate £2000 dividend allowance that she can use for the moment.

deltrotter wrote:My wife earns £8400 per year in her job and is a non-taxpayer and does not make NI contributions.

Am I correct in thinking that she would therefore have £4170 allowance left to be paying 0% tax on dividends she makes from stocks each year?

Yes and no. Yes, as the personal allowance is currently £12,570, then she would have £4,170 of that allowance left to have tax free income of almost any sort.

No, she would not have £4,170 left to be paying 0% tax on dividends -- she'd have £6,170, 'cos as well as the remaining £4,170 of PA there's also a £2,000 dividend allowance, under which the first £2K of dividends is taxed at 0%.

Additionally she could also have £1,000 of interest (from bank accounts, etc) and £1,000 of self-employment income (e.g. baby sitting, ebay trading, etc) tax free.

See here: https://www.gov.uk/income-tax-rates

deltrotter wrote:And, would it be also correct that she would NOT need to complete a self-assessment as long as the dividends were less than £4170, this keeping her in the zero tax band.

Yes and no. Yes, but if dividends total more that £10,000 then you have to file a self-assessment even if you are still in the zero tax band, e.g. if your only income was £10,001 of dividends, then even though it would be totally covered by the personal allowance you are still required to file.

fisher wrote:No. The 4k or so personal allowance she has left can only be used on earned income - not dividend income...

That is incorrect. The personal allowance applies to all forms on income. See the above link where is says, "The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on" and note that is unconditional; it does not say "earned" income.

fisher wrote:No. The 4k or so personal allowance she has left can only be used on earned income - not dividend income, but there is seperate £2000 dividend allowance that she can use for the moment.

Not quite. The balance of personal allowance can be used against anything at all. Then she gets 2k dividend allowance, then 1k PSA ( interest income ). At that level of income she also gets a Starting Rate ( being 0% ) of 5k against interest income. So 12570 ( anything ) + 5000 ( interest ) + 1000 ( interest ) + 2000 ( dividends ).

The interest portion can be generated from corporate bonds, or bond funds / ETFs if they pay interest rather than dividends; it doesn't have to be bank interest.

genou wrote:

fisher wrote:No. The 4k or so personal allowance she has left can only be used on earned income - not dividend income, but there is seperate £2000 dividend allowance that she can use for the moment.

Not quite. The balance of personal allowance can be used against anything at all. Then she gets 2k dividend allowance, then 1k PSA ( interest income ). At that level of income she also gets a Starting Rate ( being 0% ) of 5k against interest income. So 12570 ( anything ) + 5000 ( interest ) + 1000 ( interest ) + 2000 ( dividends ).

The interest portion can be generated from corporate bonds, or bond funds / ETFs if they pay interest rather than dividends; it doesn't have to be bank interest.

My mistake - apologies.

genou wrote:At that level of income she also gets a Starting Rate ( being 0% ) of 5k against interest income.

Good point, forgot about the starting rate! https://www.gov.uk/apply-tax-free-interest-on-savings

Thanks everyone, this is incredibly helpful. Over and above my question and figures, I have learnt a deal more.

But, to confirm, using the figures in my original post, she would be able to earn £6,170 in dividends without paying tax on that and NOT have to complete a self-assessment?

TIA

Del

deltrotter wrote:Thanks everyone, this is incredibly helpful. Over and above my question and figures, I have learnt a deal more.

But, to confirm, using the figures in my original post, she would be able to earn £6,170 in dividends without paying tax on that and NOT have to complete a self-assessment?

TIA

Del

I'd keep an eye on that £2k dividend allowance it may well decrease or disappear. only a few years ago it was £5k.

deltrotter wrote:Thanks everyone, this is incredibly helpful. Over and above my question and figures, I have learnt a deal more.

But, to confirm, using the figures in my original post, she would be able to earn £6,170 in dividends without paying tax on that and NOT have to complete a self-assessment?

TIA

Del

Yes.

There's also that extra allowance for interest for low-earners: "starting rate for savings".

https://www.gov.uk/apply-tax-free-interest-on-savings

Kantwebefriends wrote:There's also that extra allowance for interest for low-earners: "starting rate for savings".

https://www.gov.uk/apply-tax-free-interest-on-savings

There's seems to be an echo in here ... viewtopic.php?p=443683#p443683

and as an option...she could transfer her unused PA to you thus reducing YOUR tax payments
worth a lot if you a higher rate taxpayer
otherwise 'only' 20%

but it might need a form to be completed

mutantpoodle wrote:and as an option...she could transfer her unused PA to you thus reducing YOUR tax payments
worth a lot if you a higher rate taxpayer
otherwise 'only' 20%

but it might need a form to be completed

That benefit isn't that good. You can only transfer £1,260 of the allowance, and only if the transferee is a basic rate taxpayer.

Scott.

ah ha!
ok Scott

I was aware of the offer but unable to do it so hadnt read small print