Personal Taxation
What about interest and dividends?
Most investment income is taxed at 20% when your total income, minus allowances and reliefs, is not more than the basic rate limit, which is currently £36,000 (tax year 2008-09). Exceptions are dividends from UK companies and rents. If your income exceeds £36,000 (over and above your personal allowance) then you are a higher rate taxpayer and will have to pay 40% tax on that part of your gross investment income which is above the basic rate limit.
Savings income is usually received after 20% tax has been deducted at source. There is a 10% starting rate for savings income only, with a limit of £2,320. If your taxable non-savings income is above this limit then the 10% rate does not apply.
If you are a basic rate taxpayer then you will have no more tax to pay. If you are a higher rate taxpayer you will be liable to pay a further 20% of gross savings income above the basic rate limit. If you are a non-taxpayer you may opt to have the interest on your savings paid to you gross.
Taxed savings income includes bank and building society interest, annuities, and interest on Government stocks if you choose. Un-taxed savings income includes some National Savings Bank income and interest on Government stocks.
Share dividends form the 'top-slice' of taxable income - this means you face tax on dividends at your highest rate of taxation. UK dividends are paid with a 10% tax credit. If your total income falls within the basic rate limit there is no further tax liability. However, higher rate taxpayers are liable to tax at 32.5% on that part of the dividend falling above the higher rate limit. For non-taxpayers the 10% tax credit is not reclaimable.
Introduction
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