Question

Explain with example, the tax implication of Saving Nil Rate band and Dividend Nil Rate Band.

Answer 1

The dividend allowance does not reduce the amount of your taxable income. It is a nil rate band of tax for dividend income. The dividend allowance means that you do not need to pay any tax on the first £2,000 of dividend income that you receive.

You only have to pay income tax on dividend income that exceeds your dividend allowance. You pay income tax on the excess dividends at the special dividend rates.

Income that is covered by your dividend allowance still counts as taxable income and therefore still uses up your basic rate band or your higher rate band of tax. This can affect the rate of tax you pay on dividend income that exceeds your allowance. It can also affect the level of the personal savings allowance you can get