What Tax Do You Pay On Dividends

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My accountant told me that I would have to spend around £16,500 in extra tax on dividends.

What Tax Do You Pay On Dividends

I have used various online calculators, it always seems to show a lower tax to be paid on the dividend, for example:

Navigating Dividend Taxes: Implications Of Cash Dividends For Investors

I am also under the impression that my accountant did not really make it tax efficient (dividend amount). It appears, according to my limited experience with UK taxation, that it would be more tax-efficient to take a lower dividend, e.g. £50,000

My calculation is £13,475 for the dividend tax amount. I don’t understand why your accountant gave you a figure as high as £16.5k. This is my job…

So the income from your day job uses £14,000 of your Basic Rate band of £37,500 (ie the band from £12,501 to £50,000 of taxable income).

We then take into account the dividend calculation. You also have a free personal allowance of £2,000 for dividends.

Pdf] Distribution Of Incomes Of Corporations Among Dividends, Retained Earnings And Taxes

So I don’t think there is any more tax efficient way to take a lower dividend. If anything – if it is possible to manage it this way – it will be more tax-efficient to take a lower salary, since the tax rate on dividends is lower than the tax rate on salary.

Unless there are other complicating factors such as Child Benefit (which you did not mention), this seems to be quite a tax-efficient arrangement for me.

Of course, if you want to make pension contributions this is tax efficient because it can reduce your taxable income, so you don’t pay as much tax at a higher rate.

Hat tip to the comments from Josh Griggs and TripeHound which has improved this answer a great deal – thank you.

Qualified Dividends: Definition And Tax Advantages

Note: (a) I am not an accountant or financial advisor; this is not financial advice. (b) I wrote this answer when Mark edited his answer to include my correction about the Dividend Allowance. Since I hope my “visual” representation can be a useful addition, I decided to post it (a slightly modified version). But the main credit must go to Mark.

If the same total amount (£86,500) is maintained, you will always pay the higher rate of 32.5% on the £36,500 dividend.

, so we can “ignore” it. The next highest tax rate is £14,000 of ordinary income which is taxed at 20%. If we reduce ordinary income by £14,000 (and increase the dividend accordingly), your tax bill will be reduced because now you only pay 7.5% on £14,000:

“Originally from the top of page 3 of the Savings and dividend tax fact sheet [PDF], produced by

Dividend Tax Increase From April 2022 Across All Tax Bands

As with the personal savings allowance, income covered by the fixed dividend allowance is counted as taxable income and therefore still uses the basic rate band or the higher rate band.

Thanks to the dividend allowance, no tax is payable on the first £2,000 of dividends (that’s why the ‘total taxable income’ in the calculator reduces your liability by this amount). Importantly, the dividend allowance sits within your existing income tax band when working out your tax liability.

, as paid by the company), or other effects, about which I do not know enough to comment.

From from dividends to ordinary income. However, doing so would result in a higher dividend tax at 32.5% and a higher income tax at 40% so it would have a negative effect.

Dividend Tax: Investment Income And Total Tax: The Lowdown On Dividend Tax

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By clicking “Accept all cookies”, you agree Stack Exchange may store cookies on your device and disclose information in accordance with our Cookie Policy. Withholding tax is a tax applied to dividends received from owning foreign shares. That is an important consideration for SG investors. For example, regarding US stock dividends, there is a 30% withholding tax imposed on SG investors!

We walk through how the withholding tax is applied to US and Chinese stocks, and distinguish between 1) direct ownership of foreign stocks, 2) ownership via a US-domiciled ETF and 3) ownership via an Irish-domiciled ETF.

We show the withholding tax for owning foreign shares, by different countries. In addition, we distinguish between 1) directly owning foreign shares and 2) owning them through an Irish-domiciled ETF.

Non Property Dividend Stocks For Income Seeking Investors: Sheng Siong (ov8); Uob (u11); Singtel (z74); Sgx (s68)

We cover the following: 1) Where a company is registered vs where it is domiciled, 2) For *Non-US* Shares, US-domiciled ETFs are really tax inefficient, 3) US-domiciled ETFs disclose “GROSS” dividends while Ireland. – domiciled ETFs disclose “NET” dividends, 4) “Distributing” vs “accumulating” Irish-domiciled ETFs, 5) Situations where it would make sense to use US-domiciled ETFs.

In our follow-up article, we have identified the most suitable ETFs for SG investors, taking into account withholding tax considerations as well as other aspects. We have prepared two lists – one for ETFs that give exposure to certain regions/countries, and the other for ETFs that give exposure to certain sectors.

During our research, we stumbled across several local financial sites that have done a good job explaining the implications of withholding tax for foreign stock holdings, from the perspective of a Singapore-based investor. We look forward to building on the good work already done.

Disclaimer: We did a lot of work in this compilation and all the information is to the best of our knowledge. BUT we do not guarantee accuracy and reliability! We are not tax consultants. According to our understanding, most brokers defer foreign dividends at standard withholding tax rates, instead of reducing tax treaty rates. Our guess is that the system is not dynamically updated or some countries require proactive tax refund claims from investors.

Tax Treatment On Dividends

Withholding tax is a tax applied to dividends received from owning foreign stocks. It applies to dividends received, and *does* not apply to the total value of the shares/ETFs you buy.

That is an important consideration for SG investors. For example, regarding US stock dividends, there is a 30% withholding tax imposed on SG investors!

While the US has a large withholding tax on dividends, other countries also have withholding taxes. How high or low the tax is depends on where the shares are domiciled, where the ETF is domiciled (which is separate from where it is registered) and where your tax residency is. That’s because certain countries have special tax treaties with each other.

For the lowest withholding tax, SG investors should choose Option 3 – Buy US stocks through Irish domiciled ETFs. In that case, only 15% revenue is lost, vs. 30% revenue is lost for the other two options.

Dividend Declaration Rules In Singapore

For the lowest withholding tax, SG investors should choose Option 1, Option 3 or Option 4. 1) Directly, 3) Via an Irish-domiciled ETF or 4) Via a HK-domiciled ETF. Meanwhile, Option 2 (via a US domiciled ETF) has a very high withholding tax for Singaporean investors.

We assume that most brokers still withhold foreign dividends at standard withholding tax rates rather than applicable tax treaty rates. So for all practical purposes, we will compare Columns 1 and 3. We have highlighted instances where one option seems clearly better than the other (see green box). For example, for UK stocks, it is better to invest directly (0% effective withholding tax) compared to an Irish-domiciled ETF (15% effective withholding tax).

I also have data on countries outside of the list below, so please drop me an email or comment on any countries not found below.

Note: In the US, there is an 80/20 rule for US companies that generate > 80% of their revenue outside the US. In such cases, only the % of income derived from the US will be subject to withholding tax. Philip Morris is an example of such a company.

For Our Singapore Readers, What Withholding Tax Rates Apply To You?

Good to Note (1): Please note that for withholding tax purposes, we look at the domicile of the company and not where it is registered.

For example, Ping An Insurance Group is registered in HK but domiciled in China. Therefore, dividends paid by Ping An Asuransi to Singapore-based investors will pay 10% withholding tax.

Good to Note (2): In almost all scenarios, US-domiciled ETFs investing in non-US stocks will be very tax inefficient for Singapore-based investors.

Not only do Singaporean investors have to bear a hefty 30% withholding tax on US ETF dividends, Singaporean investors can also be hit with a second round of withholding tax when non-US stocks pay dividends to US-domiciled ETFs, as seen in the Chinese stock example above.

Tax Treatment Of Canadian Dividend Paying Stocks

Good to Note (3): When comparing ETFs, note that the US-domiciled ETF’s dividend yield is “GROSS”. Meanwhile, the Irish-domiciled ETF’s dividend yield is “NET”.

In short, this means that the dividend yield published for the US-domiciled ETF has reduced the 30% withholding tax. But the dividend yield published for Irish-domiciled ETFs has reduced 15% withholding tax.

Good to Note (4): There are two types of Irish-domiciled ETFs: “distributing” and “accumulating”. The

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