HM Government indicates that any "unused" portion of the Personal Allowance can be used toward dividend income, after which the Dividend Allowance can be applied. However, at present, we calculate these programs in isolation.
Personal Allowance on standard salary: £10,000
Personal Allowance on dividend income: £2,570
Dividend Allowance on dividend income: £500
Total taxable income: £2,430
We would currently find total taxable income to be £4,500, as we do not apply the Personal Allowance to dividend income.
anth-volk
commented
1 month ago
HM Government indicates that any "unused" portion of the Personal Allowance can be used toward dividend income, after which the Dividend Allowance can be applied. However, at present, we calculate these programs in isolation.
Take a situation where an individual earns a salary of £10,000 and dividend income of £5,000. The 2024/25 Personal Allowance value is £12,570, and the Dividend Allowance value is £500. The correct tax calculation for this situation (per https://www.theaccountancy.co.uk/limited-company/dividends/paying-tax-on-dividends-in-2022-23-56115.html) would be:
Personal Allowance on standard salary: £10,000 Personal Allowance on dividend income: £2,570 Dividend Allowance on dividend income: £500 Total taxable income: £2,430
We would currently find total taxable income to be £4,500, as we do not apply the Personal Allowance to dividend income.