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Loss carry back against dividends?

Loss carry back against dividends?

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Client is shareholder in family company and receives dividend income.  In 2010/11 he made a loss on an EIS investment.  I want to carry back the loss to 2009/10 when he was a higher rate tax payer on his dividend income.

I have run the tax comp for 2009/10 again with a loss in it so that I can see how much repayment to claim, and it looks wrong to me.  Dividends are obviously the top slice of income so the tax saving is 32.5%.  But then the 10% tax credit has not been reduced by the corresponding amount, giving an effective rate of 42.5% on the losses.

Can this be right?

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By David Massey
30th Jan 2012 17:59

I think it is right, Liz


assuming the client's non-dividend income is taxed at 20%, then the loss will be set against that income giving a tax saving of 20%.

This will free up some of the basic rate band for the dividends; these will now be taxed at the ordinary rate (10%) rather than the upper rate (32.5%) and this will save a further 22.5%.

So your effective rate of relief is 42.5%.



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