Self assessment needed if higher rate tax payer and have shares????

[NichyNoo]

I'm not sure how shares are taxed so can I just clarify please? Don't want to see an accountant for such a straightforward question but also want to make sure I do things correctly.

If a person earns circa £80,000 per year plus has a portfolio of shares (inherited from a relative so has no broker or knowledge of shares at all), do they need to pay more tax on the dividends over and above the basic tax deduction that is automatically shown on the dividend slip? If so, does this need to be done via self assessment or is there another way?

If owning shares is too much hassle and person decides to just sell them, is there any tax liability?

Thank you for any advice!

Here is the HMRC explanation of tax on dividends. With an income of £80,000 someone would be charged 32.5% on any dividends. However, it is often possible to stipulate that dividends are reinvested in more shares rather than received as cash. If the shares are sold any profit generated above £10,600 is liable for Capital Gains Tax explanation here

If the portfolio is substantial it is certainly worth talking to a financial advisor about how best to organise and manage it. FWIW self-assessment is a fairly simple process provided you keep hold of documentation such as dividend notifications..

If a person earns circa £80,000 per year a visit to an accountant would probably prove worthwhile, but anyway:

Yes you do need to pay more tax on the dividends, this will be 25% of the net dividend received (unless the dividends push you over £100,000 income in which case it gets a lot more expensive). You may be able to do this through PAYE but self assessment is easier IMO.

As you have presumably not owned the shares for very long there is probably not enough capital gain to incur tax, but there are other things you should consider like moving the shares into a SIPP (pension) which could SAVE you a whole bunch of tax.

See an accountant.

Oh dear - I've just read the HMRC website and seen that we need to pay more tax on our savings too. It is all so complicated. I guess we need to see an accountant as you suggest.

Are accountants bound by professional secrecy (like doctors or lawyers) or, if we tell them our financial history do they tell HMRC? I'm not looking to dodge tax but our situation is very complicated (been living abroad) and it looks like we might not have been paying what we should for the past few years due to sheer ignorance.

It really isn't complicated if you file a self-assessment. I can highly recommend a software product called TaxCalc which leads you through all the relevant sections such as pension contributions, investments & income very gently and enables you to file it online. Also gives you a running total as you go along

The onus is on you, the taxpayer, to make sure you're paying the right amount of tax. If you see an accountant for advice or to help get your return together they are bound by professional confidentiality. Unless they suspect you of something criminal like money-laundering... which presumably does not apply :)

Confidentiality is not the same as Legal Professional Privilege which in the UK only applies to information exchanged in the context of legal advice not to doctors or priests, contrary to common belief.*

Evading tax is a crime and does therefore come under the Money Laundering Regulations, however there is an exemption in the Proceeds of Crime Act which essentially grants the equivalent of LPP to certain advisers under certain circumstances, which would normally include an accountant advising on the liability to tax of specific transactions.

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• this is currently a hot topic as the courts have recently decided that LPP is limited to legal advice given by lawyers, not even by experts in certain areas of the law such as tax.

Thank you for the advice. So, now that DH has moved into an £80,000 job, he needs to phone HMRC to tell them and ask for a self assessment form....or will HMRC know automatically from his first payslip?

I don't work - half of our savings are in accounts in his name and half in my name. Is this a problem? I used to work and the money has very much been accumulated by both of us but I'm guessing we would only need to pay extra tax on the savings in his name plus the shares (which are in his name only)?

You are taxed individually. So any income from your savings affects your tax bill and any any income from his savings affects his as far as the tax office is concerned. If your earnings are substantially lower than his then it may benefit you to put more of the savings (or transfer the shares) in your name. He'll have to register with HMRC for self-assessment and get sign-in details if he'd like to file online ... now is a good time to do that for the 2012/13 tax year... and do look up that TaxCalc software as it makes the whole process a doddle

If he has savings income in addition to his earned income of £80k then yes he needs to notify HMRC.

Transferring shares to you would probably be a good idea, possibly through a "bed and breakfast" arrangement to crystallise a capital gain. You should see an accountant.

Thank you for the great advice. Can I be cheeky and ask another question please? I've started looking for accountants in my area (Wirral) but not sure how to choose a 'decent' one. Is there anything in particular I need to look for (qualifications, areas of expertise etc.) or is it a case of one size fits all and I can see any? Thank you

A personal recommendation is usually the best place to start. However, if you're primarily interested in personal taxation, look for one that has expertise in that area.

Qualifications: look for a practice that advertises with "Chartered" in the description of their practice (i.e. Chartered Accountants. Chartered Certified/Management Accountants or Chartered Tax Advisers) - this means that as well as qualifications for individuals the practice is supervised by a professional body. Check with the body that this is true.

Areas of expertise: look for a practice that advertises personal tax services - many practices are geared up to serve businesses and although they may have the expertise to work with private clients (they will usually do this work for business owners) they are unlikely to give you as good a service/price as a firm that actively seeks this work.

Finding: personal recommendation usually best, failing that there's nothing wrong with googling "wirral accountants" to get a long list and then check out the above points on their web sites to whittle it down. I would say also consider a service that works remotely online/by email but none of these pass the "personal tax focus" test. Hmmm...