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Sam
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Category: Tax
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Does dividend income contribute to which bracket

Resolved Question:

Hello
Does dividend income contribute to which bracket capital gains tax is paid at (18% or 28%).
An example I have capital gains on sale of shares in a business of £70k, wages of £6.5k and dividend income of £13k (excluding tax credit). I have a capital loss of £27k to bring forward to.
At what rate will I pay tax on the £70k gains considering my other income, capital losses bf and capital gains allowance?
Also are there any other items I can offset against this capital gain, interest from a loan to fund the purchase of the shares?
Many Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.
Dividend income is charged under the income tax rules (so not 18% and 28% which is for the capital gains tax regime) so either the already 10% tax rate - or if a 40% taxpayer at 32.5% (less the 10% suffered) or 37.5% (less the 10% suffered)if a 45% taxpayer
But the sale of shares do fall under the capital gain tax regime
So your position is as follows
First the income tax position wages of £7000 means that you have £31865 unused basic rate band -
Your shares are £14300 Gross (Dividend £13000 and £1430 tax credit)
So you will have no further tax liability on your dividend income
Then you have the capital gain position
From the £70,000 gain (which I assume is the amount left over after you have deducted the purchase price from the sale price) you can also deduct any admin/legal costs or fees or stamp duty to buy and sell.
Loan interest to buy the shares is not an allowable expense, this is a personal expense. And I am afraid other then the selling and buying associated costs, there are no other deduction available for capital gains and shares unless this was your business and you are selling your shares - in which case you may be entitled to entrepreneurs relief, let me know if this is the case.
Assuming the figure is still £70,000 then first you will be expected to use the capital loss of £27,000 - which leaves £43,000 - then the first £11,000 is your annual exemption allowance (if the sales were sold this tax year 2014/2015, if this relates to last tax year 2013/2014 then the first £10,900 is exempt)
This then leaves £33,000 liable to capital gains tax.
Assuming this relates to this tax year - then
The amount that can be charged at 18% is whatever remains unused of the basis crate band (which is £31865 less gross dividend income of £14300 = £17565 x 18% = £3161.70 and then the remaining gain of £15435 x 28% = £4321.80
So a total capital gain bill of £7483.50
Let me know if you wish me to expand on any element of the response
Thanks
Sam
Sam and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Hi Thank you for your response, slightly confused though.

My wage income of £6.5k, why has that not been deducted from the basic tax band £31865 ie is the calculation at what part of the gain tax at 18% not as follows:-

£31865 - dividend income of £14300 - wage income of £6.5k. So £11065 @ 18%. and the remaining @ 28%

Expert:  Sam replied 2 years ago.
Hi
Thanks for your question
AS the basic rate band in its entirety is £41865 - of which the first £10,000 is personal allowances, leaving just £31865 at 20%
You only use potentially £6500 of the personal allowances and as less than £10,000 this would leave £3500 unused and not available to offset anywhere else (so cannot be used against capital gains)
So the figures I gave you are correct.
Thanks
Sam
Customer: replied 2 years ago.

Thank you for clarifying. In addition can I qualify for entrepreneurs relief if I was a shadow director but not registered as director with companies house? I was actively involved in the business for which the shares were sold in and had been held longer then two years.

In relation to the unused personal allowance of £3.5k are there any benefits/sharing of this amount available with my wifes income who earns £45k wage.

Expert:  Sam replied 2 years ago.
Hi
Thanks for your response and further questions.
To qualify for Entrepreneurs relief you must
have at least 5% of shares and voting rights in the company
be an employee or director of the company (or one in the same group)
the company’s main activities are in trading (rather than non-trading activities like investment)
So its just a question of whether you had voting rights, which may not be the case if you were not a registered director with Companies House or HMRC.
Finally I am afraid you cannot share any element of your personal allowance with anyone else, any unused element is lost, this is due to independent taxation which came into play 1990/1991
Please let me know if you require me to expand on any element of information provided, from your original question. However, if in the meantime you could rate/accept the answer. it would be very much appreciated as this ensures Just Answer credit me for my time.
Thanks
Sam