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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My non-working wife is to be paid a dividend of £92,000 from

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My non-working wife is to be paid a dividend of £92,000 from a family owned business. She has no other source of income. Would she pay tax based on £92,000 less £10,600 (Personal allowance) and them the first £31,785 at 10% and the remainder at 32.5%. Or would all £92,000 be taxed at 32.5% or would £81,400 be taxed at 32.5%?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Leave this with me while I do some calculations.
Expert:  TonyTax replied 1 year ago.
Dividends are deemed to be paid net of a 10% notional tax credit so the £92,000 dividend will gross up to £102,222 for tax purposes. The first £9,489 will be tax free (though the 10% tax credit is notional and, therefore not repayable under any circumstances). That leaves £92,733. The first £31,785 will be taxed at 10% so there will be no tax to pay on that as the 10% tax credit covers it. The balance of £60,948 will be taxed at 32.5% which is £19,808.10. Deduct the 10% tax credit on the £60,948 of £6,094.80 and your wife will be left with tax to pay of £13,713.30 on 31 January 2017. As your wife's gross income will be over £100,000, she will lose £1,111 of the personal allowance of £10,600. This is because you lose £1 of the allowance for every £2 of income you have in excess of £100,000. If she paid a stakeholder pension contribution of say, £2,000 net of basic rate tax relief at 20% (£2,500 gross), that will serve to reduce her "adjusted net income" to below £100,000, preserving her entitlement to the full personal allowance. Take a look here for more information on that. I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 1 year ago.
Dividends are deemed to be paid net of a 10% notional tax credit so the £92,000 dividend will gross up to £102,222 for tax purposes. The first £9,489 will be tax free (though the 10% tax credit is notional and, therefore not repayable under any circumstances). That leaves £92,733. The first £31,785 will be taxed at 10% so there will be no tax to pay on that as the 10% tax credit covers it. The balance of £60,948 will be taxed at 32.5% which is £19,808.10. Deduct the 10% tax credit on the £60,948 of £6,094.80 and your wife will be left with tax to pay of £13,713.30 on 31 January 2017. Unless, the dividend is repeated in 2016/17, your wilfe will need to apply to reduce any payments on account of her tax liability for that year as these are provisionally based on the 2015/16 income. As your wife's gross income will be over £100,000, she will lose £1,111 of the personal allowance of £10,600. This is because you lose £1 of the allowance for every £2 of income you have in excess of £100,000. If she paid a stakeholder pension contribution of say, £2,000 net of basic rate tax relief at 20% (£2,500 gross), that will serve to reduce her "adjusted net income" to below £100,000, preserving her entitlement to the full personal allowance. Take a look here for more information on that. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Sorry, you mentioned the personal tax allowance. How does that come into play? Is that deducted from the tax due or what?. In respect of the pension contribution, my wife is a non-worker can she have a private pension fund?
Expert:  TonyTax replied 1 year ago.
The personal allowance is the amount of income one can have tax free in any one tax year. For 2015/16, that is £10,600. This figure is deducted from the income, not the tax liability. Out of an income of £102,222, your wife is taxable on £92,733. As I said previously, the tax credit is notional and is not repayable under any circumstances.
An individual who is not working can have a stakeholder pension. The maximum that can be contributed to that in any one tax year is £2,880. HMRC add £720 tax relief to bring the gross investment up to £3,600.
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