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ACCA Strategic Professional · Advanced Taxation (UK) · Legitimate tax planning measures

Tom has taxable non-dividend income of £30,000 and receives dividends of £10,000 (all taxable, after personal allowance). Using the rates and bands in the ATX-UK tax tables (basic rate band £37,700; dividend rates 8.75%, 33.75% and 39.35%; dividend nil rate band £500), what is his income tax on the dividends?

The dividend tax is £1,406.25. Non-dividend income leaves £7,700 of the basic rate band. The first £500 is at nil, £7,200 at 8.75% gives £630, and the remaining £2,300 falls in the higher rate band at 33.75%, giving £776.25.

  1. A£831.25
  2. B£1,406.25Correct
  3. C£1,450.00
  4. D£3,206.25

Explanation

Non-dividend income uses £30,000 of the basic rate band, leaving £7,700 for dividends. Of this, £500 is taxed at 0% (nil rate band) and £7,200 at 8.75% = £630. The remaining £2,300 is in the higher rate band at 33.75% = £776.25. Total = £1,406.25. £1,450 ignores the nil rate band.

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