- April 16, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Title: Considering Financial Options: High-Interest Savings vs. Dividend Investing Strategy
Seeking Advice on Best Way to Utilize £20k
I am currently weighing two potential options for my £20k savings. One option is to keep the money in a high-interest savings account yielding 5%, which would result in £1,000 interest annually, with £200 being deducted for taxes. Alternatively, I am considering investing in diversified dividend shares, which could potentially yield a 7% return, resulting in £1,400 in dividends.
### Tax Implications of Investing in Dividend Shares
One of my main concerns with the investment option is how taxes would be handled for the £900 above the tax-free dividend allowance. I am looking for clarification on how this additional income would be taxed and what steps I would need to take to ensure compliance with tax regulations.
### Risks and Administrative Efforts Associated with Investment Option
In addition to understanding the tax implications, I am also interested in learning about any extra risks or administrative efforts I might face by choosing the investment option over a straightforward savings account.
AI Legalese Decoder can provide valuable insights and guidance on navigating complex tax laws and regulations related to investing in dividend shares. By utilizing this tool, individuals can make informed decisions and effectively manage their financial resources to maximize returns while staying compliant with tax laws.
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Hi /u/Tight_Syrup_1485, based on your post the following pages from our wiki may be relevant:
* https://ukpersonal.finance/gifts-and-inheritance-tax/
* https://ukpersonal.finance/investing-101/
* https://ukpersonal.finance/savings/
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^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Firstly, if you have £20k to invest, have you maxed out your ISA first (£20k per year)? If so, and the investments can wait until retirement before you dip into them, have you filled your pension (£60k per year)? Both protect your investments from tax so nullify your questions.
Assuming you’ve filled £80k elsewhere (!) and paying tax is your next best option (well, Premium Bonds and Gilts also come into play too first), it sounds like you’re familiar with the [Personal Savings Allowance](https://ukpersonal.finance/savings/#How_much_tax_will_I_pay_on_my_savings_interest) for a basic rate taxpayer, but presumably you might be a higher or additional rate taxpayer to be in this boat? HR and AR taxpayers have a smaller (or non-existant) PSA. They also [pay higher rates of Dividend Tax](https://www.gov.uk/tax-on-dividends). The linked page tells you the process for declaring dividends above the tax free allowance – either by calling up HMRC and getting a tax code change (for dividends less than £10k), or by doing a Self Assessment tax return.
As per the other reply, need more info about your circumstances to give meaningful advice.
Generally dividend investing is bad advice – it’s popular with certain demographics, but companies increasingly return profits to shareholders by share buybacks so you should probably just look at total return.