Hi,
I,m looking to start up an Investment trust savings plan for my child (20 -30 per month). One thing that puzzles me is that it says that dividends are paid net of tax and "Non taxpayers will not be able to reclaim any tax". So are Dividends on shares not treated as "income" .
Thanks in advance,
Graham.
P.S Any tips on suitable trusts would be appreciated. At the moment it's looking like Edinburgh InvestIT. Also looked at Witan and F&C.
They are treated as income.
I thought they were, so why can't a non taxpayer claim back tax on their dividends ?
Thanks,
Graham.
They are treated as income.
Yes they are treated as income, but you are not allowed to reclaim any tax. A higher rate tax payer will have to pay additional tax on it though.
"Graham" wrote
[Clue:] *What* tax??It used to be the case that non-taxpayers could reclaim the tax credit on dividends, but GB abolished that a few years ago.
The notional 10% tax credit representing their share of the corporation tax paid on the profits.
Because Gordon Brown stopped anyone, including pension funds, reclaiming tax credits on dividends unless they were inside an ISA, and that stops on 5th April 2004 as well.
"Jonathan Bryce" wrote
Duh! - Exactly!! The key thing is that it is "notional" - hence was never paid, so how could it be claimed-back??
Because the law says you can't.
So when it talks about the tax on income being dependant on where the initial capital came from (i.e. parents, grandparents), in practice it would make no difference ?
Graham.
It was paid - by the company in corporation tax. And until a few years ago, non taxpayers *could* claim it back.
So how the ISA managers get their refunds?
"Andy Pandy" wrote
Well, err no - corporation tax is a different amount, is it not? [Well it might be the same, but not very often.]
"Andy Pandy" wrote
Are you talking about ACT (Advance corp tax)?? This doesn't exist now, hence cannot be claimed back...
If a child earns more than £100 in income from capital given to him from his parents, it is treated as his parents income.
If his parents are higher rate taxpayers, then it would make a difference.
ACT made no difference to the final Corporation Tax bill, as it was treated as part payment of the CT liability.
The removal of the ability to reclaim tax on dividend income really does mean a higher tax burden for some people.
The corporation tax bill is real, in most cases.
Really sorry for being thick, but what other form of income would there be on an IT apart from dividends ? I know some trusts provide an income but I'm looking at ones that aim for long term capital gain.
Graham.
Interest in some cases, if it invests in bonds / gilts.
Capital Gains, but that doesn't count for the £100 per year rule.
The tax credit was reduced to 10% and ceased to be reclaimable by non-taxpayers in April 1999.
Robin
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