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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi I have a limited company and have built up a reasonable

Resolved Question:

Hi I have a limited company and have built up a reasonable sum of retained profits in the company. I am the 75% sherholder my wife holds 25%.

I would like to take money out of the company in the most tax efficient way possible.

I do pay myself small dividents in addition to a modest wage.

My wife works part time as a consultant

If I pay myself and my wife a significant dividend for example 60k for myself and 20k for my wife. I am concerned that I will incurr a significant personal tax liaibilty.

am I current in thinking my wife and I will have to pay 40% tax on income received over 32k
Submitted: 1 year ago.
Category: UK Tax
Expert:  Tony Tax replied 1 year ago.
Hi.

The first £9,440 of your income for 2013/14 is tax free. The next £32,010 is taxed at 20%. The next £117,990 is taxed at 40% and income in excess of £150,000 is taxed at 45%.

Take a look here for information on dividends and tax. Dividends are treated as basic rate tax paid even though they only carry a non-repayable 10% tax credit.

If your income is more than £41,450 in 2013/14, that part of any dividend which takes your income above £41,450 but under £150,000, will be taxed at 32.5% less the 10% tax credit. So, if all your £60,000 dividend which grosses up to £66,666 was above the £41,450 figure, you would have further tax to pay of £14,999.85 (22.5%). Clearly, that is not the case as you say your salary is low so you will have some of the basic rate band of £32,010 available and any part of your personal allowance not covered by salary to use against dividends. The same will apply to your wife unless she is already a 40% taxpayer before accounting for dividends.

The best way to avoid higher rate tax on dividends is to spread them over several tax years.

I hope this helps but let me know if you have any further questions.
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14296
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
Tony Tax and 3 other UK Tax Specialists are ready to help you

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Tony Tax
Tony Tax
Tax Consultant
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Inc Tax, CGT, Corp Tax, IHT, VAT.