Do I pay income tax under the following scenario?
If my savings interest income is £6,000 and dividend income is £6,000, is my taxable income £12,000? Or do I use my £1,000 personal savings allowance and £2,000 dividend allowance to reduce my personal income to £9,000 before tax? I never find tax simple – I hope you can help.
The first £1,000 of savings income for a basic-rate taxpayer and £500 for a higher-rate taxpayer benefits from a 0% income tax rate, as does the first £2,000 of dividend income. However, these amounts do still count towards your total income, so in answer to your question, your total pre-tax income is £12,000.
Most of this amount falls within your personal income tax allowance of £11,850 in the 2018/2019 tax year. The small amount in excess of this will be taxed as dividend income but, as it falls within your £2,000 annual dividend allowance, it is taxed at 0%, meaning you will have no tax to pay.
The personal allowance is set to increase to £12,500 from the next tax year on 6 April 2019.