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Expert answers: Can I take my dividends tax-free regardless of my other earnings which take me to the threshold?

Readers question: As a director of my Limited Company, the majority of my income comes from my contracts, plus my properties and land. Can I still take a £2,000 dividend tax-free regardless of my other earnings which take me to the 40% threshold?

take my dividends tax-free

Experts answer: This week’s ‘ask the expert’ answer comes from Neil Kellaway, Operations Manager at Intouch Accounting.

You are able to take a £2,000 tax-free dividend from your Limited Company or from shares in other companies you may hold. After this threshold, the dividends would be taxable having taken into consideration your other income, i.e. employment, property etc. Dividend tax is taxed differently to employment or savings income. You would pay 7.5% dividend tax on any dividends within the basic rate threshold, which is capped at £50,000 for 2019/20 (including the personal allowance of £12,500). Anything taken as a dividend from £50,001 to £150,000 is taxed at 32.5%. Anything above £150,000 is taxed at 38.1%.

If you have unused personal allowance (which in this circumstance wouldn’t be likely), this could also be used as a tax-free dividend in addition to the £2,000. For example, if you had employment income of £10,000 and no other income; you’d have £2,500 unused from your personal allowance, meaning you could take £4,500 as a tax-free dividend from the company.

Tax and dividends can sometimes be confusing, and it’s times like these when having the support of a dedicated Personal Accountant really counts. Find an accountant that offers that, with a direct line to your own Personal Accountant who’s on hand to answer all your questions, no matter how unique they are to your personal circumstances.

If this sounds like the kind of support and service you need from your specialist contractor accountant, get in touch today.

More on our guide to dividends tax and answers from our experts.

Do you have a question that you need an expert answer to? Here is where you can ask your questions

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