Cash Clinic: Higher rate tax due after post-divorce shares dividend paid

QUESTION: As part of my divorce settlement I bought some of my ex-husband’s shares in a private company, which pays dividends of around £50,000 a year.

I have heard that my ex-husband was liable to pay higher rate tax on his investment income and he certainly completed a tax return every year. I have a small part-time job paying around £15,000 a year so I’d like to know what I need to do to keep my tax affairs in order. LM, Dumfries

ANSWER: By virtue of the dividends you receive you will also be liable to pay higher rate tax on part of your dividend income because your total income exceeds the higher rate threshold of £42,475.

You will also be required to complete a tax return. All individuals who become liable to higher rate tax must notify HM Revenue & Customs by 6 October following the end of the tax year in which you first become liable to higher rate tax.

The same rules apply to those individuals who obtain a new source of income which is not fully taxed at source or who make a capital gain in excess of the annual exemption (currently £10,600) in any tax year. This is to allow HMRC to issue an appropriate tax return or request further information from you. The penalty legislation allows for a penalty for failure to notify of up to 100 per cent of the tax due, but this penalty can be mitigated by payment of the tax in full by the due date of 31 January, 2011 following the end of the tax year.

When you notify HMRC of the need to submit a tax return you will get a notice to file a tax return. If this notice to file is issued after 30 September you can only file the return electronically.

If you intend doing this yourself, you will need to register with the HMRC online service (at www.hmrc.gov.uk) and obtain a user ID, which can take a couple of weeks to arrive by post.

The deadline for submission of this return is the later of three months after the date of issue of the return or 31 January, 2012. The due date of payment of the tax remains at 31 January, 2012 whenever the return is due to be submitted and this can lead to a situation where the return is not required to be submitted until after the tax is due to be paid.

You should also be aware that HMRC will raise penalties of £100 if the return is a day late, increasing by £10 per day if it is more than three months late. Unlike in previous years this penalty continues to apply in situations where no actual tax is payable. HMRC will charge interest on any tax paid late; if the tax is paid more than 28 days late, HMRC will charge 5 per cent of the tax due.

• Glen Gilson is a partner and head of private client & financial services at HBJ Gateley. If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [email protected]. The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley accept no liability on the basis of this article.