All taxpayers, regardless of the highest rate at which they pay tax, are entitled to the dividend allowance. The dividend allowance is actually a nil rate band; dividends falling within the band are taxed at a zero rate. Dividends are taxed as the top slice of income.
Review your dividend strategy prior to 6 April 2022 and, if you have sufficient retained profits, consider paying additional dividends to utilise any unused dividend allowances.
Discuss your dividend strategy with us to ensure dividend allowances for 2020/21 are not wasted.
A separate allowance is available for savings. However the savings allowance is available to basic and higher rate taxpayers only – there is no savings allowance for additional rate taxpayers. The allowance is set at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers. It is available in addition to the savings zero rate. Interest earned on tax-free savings, such as ISAs, does not count towards the limit.
Couples should look at how their savings are held to ensure that allowances are not wasted. For example, if one partner is an additional rate taxpayer and the other is a basic rate taxpayer, ensuring any savings income accrues to the partner paying tax at the basic rate will ensure that the first £1,000 is tax-free rather than taxable at the additional rate.