SQE1 sample questions

Question 45

A woman owns shares in a private limited company. The shares are not in an Individual Savings Account (ISA). In the 2023/24 tax year the woman receives a dividend of £5,000. Her only other source of income is her salary, and her taxable income, including the dividend, is £41,000.

In 2023/24 the personal allowance is £12,570, basic rate tax band is £12,571-£50,270 and the dividend allowance is £1,000.

How much Income Tax, if any, should the woman pay on the dividend?

A. None, because the dividend was paid by a private limited company whose payment of Corporation Tax on its distributable profits satisfies the woman’s liability for Income Tax.

B. None, because her taxable income including the dividend does not exceed the upper threshold for basic rate tax.

C. She should pay Income Tax at the Income Tax basic rate on the entire dividend because it exceeds her annual dividend allowance.

D. She should pay Income Tax at the appropriate dividend tax rate on the proportion of the dividend that exceeds her annual dividend allowance.

E. She should pay Income Tax at the Income Tax additional rate on the proportion of the dividend that exceeds her annual dividend allowance.