Question archive: investment income
No, if you are a basic rate tax payer and your dividend income does not take you into the higher rate tax bracket, you do not have to pay the difference between the 10% and the basic rate tax band.
How do you transfer shares between husband and wife?
To transfer share between husband and wife you require a share transfer form. These are available from stockbrokers, banks, accountants or solicitors. An Inland Revenue office must ‘stamp’ the forms before they are sent to either the Registrar of Companies or the Company Secretary, depending on the type of company involved. If the shares are ‘partly-paid’ there is a different form that needs to be signed by both husband and wife.
The stamp duty payable is half a percent of the market value of the shares. In some circumstances this may involve further action by the Inland Revenue in arriving at an agreed value of the shares.
It would be advisable to seek professional advice on matters such as these.
I am married - how can I minimise the higher rate tax I pay on my savings income?
If your wife is a basic rate tax payer you could arrange for the capital in your savings accounts to either be transferred into joint names or to transfer the whole amount into your wife's name. Any interest related to your wife's share of the capital would be taxable at her highest rate.
If you could tie your capital up for a number of years you could invest in an ISA, if you do not already have one of these. The interest on this is currently tax free. Alternatively the National Savings organisation offer 'tax free' investments. If you are likely to drop out of the higher rate tax bracket in the foreseeable future, you could consider investing in a vehicle that lets you take the interest in a fiscal year of your choice. An example would be an offshore roll up fund. You will need to get professional advice on this.
There are also various relief's available to higher rate tax payers if they make payments under the deed of covenant, gift aid or millennium gift aid schemes. The net payments are grossed up at the basic rate of tax and are available to be set against gross taxable income in the year, being relieved at 40%.
Everyone in the UK is entitled to tax-free personal allowances. This means that they can receive taxable income up to a certain limit without paying tax.
Bank/building society interest is taxable income. Generally, income support (now called Jobseeker's Allowance) is also taxable, but in some cases it is not and so you will need to ask the Benefit Office whether or not the amount you receive is fully taxable.
You will need to calculate your total taxable income for the year (including the interest from your investment) to determine whether or not you will pay tax on the interest itself. If you can say that your taxable income will be less than your personal allowance then you can ask your bank/building society to pay you the interest gross (i.e. without deducting tax at source).
If you don't mind tying your money up without being able to get your hands on it you could consider investing in an ISA, income from which is tax-free.
Dividends are perfectly legal, if they're done properly. There is usually a free choice to take dividends or salary.
To pay legal dividends, you have to have what is known as "distributable reserves", or in English, loose money in the company. You then are allowed to take a dividend, on which no National Insurance Contributions are payable.
Salary always has to have Tax and NIC deducted. Take a small salary, by all means, but balance it against any private pension payments you want to make.
Finally if you are a one-man company, see if your accountant thinks there is an "IR35 problem." Briefly, this is where your company takes out a contract to supply your services to a client, and the work you're doing is pretty much as if you were an employee of the client. There, your chioce to take dividends is withdrawn, and all the income (near enough) is treated as salary and PAYE tax and NICs have to be deducted.
There are two ways to look at this. Do you want to maximise the profits retained from rentals? If so go Ltd Company and take dividendss.
If you want to be able to realise gains on disposal, also Company is best bet, but the assets belong to the company and not you.
Take serious advice from your local ACA who will gladly help you for a few quid and help you set up the Company
I'm a student and I've inherited £100,000. It's in the bank and is taxed, is this correct?
Usually if you have over £50,000 in the bank your interest will credited gross (ie with no interest deducted). This could leave you with a tax problem, especially if you have other income which is taxable (eg holiday job).
You should seek professional advice from an IFA who will be able to set out the various options for investing your money.
Is it legal give your children "B" Shares in a company and periodically pay them a dividend?
There is nothing illegal in such gifts.
However, depending on their ages, the dividends could be assessable on the parents. And CGT could be due on the gifts.
This is a complex area and you should consult the company's accountant.
Is the amount I invested in my Individuals Savings Account (ISA) deductible from income tax?
The amount of capital you invest in an ISA is not deductible from your taxable income for the year. However, the income you receive on your investment in an ISA is credited to you without having income tax deducted from it. When your ISA ceases you will not suffer capital gains tax on it either.
This page was last reviewed on 07 April 2005. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
