Using marginal/aggregate tax rate for dividend income in retirement

[Moneymatters]

As usual, I've done no research.

Husband and wife retired, past pension age.
I'm coming from an assumption their incomes treated completely seperately from an income tax and allowances perspective.
Or can you still have an allowance for a dependant under the income threshold?

Anyhow, I was just thinking, it might make sense for a partner with a modest pension income to have some Dividend income but treated at the aggregate rate (hence marginal tax rate) rather than the cap gains rate. I think this is possible based on other posts regarding tax returns.

Then I wondered, in such a scenario, what would be the income threshold when it's worth selecting the aggregate rate for dividend income to come out "on top"?

(Maybe up to about 3mil pension/dividends combined gross income might make sense.
Approx, first 1mil effectively zero tax due to various allowances, next 2 mil at 5% but would also get tagged for 10% inhabitant tax pushing it to 15%. But that's still less than 20.x%?

Please form an orderly queue to correct my misconceptions..

[adamu]

it might make sense for a partner with a modest pension income to have some Dividend income but treated at the aggregate rate (hence marginal tax rate) rather than the cap gains rate.

Yes this is true (although like you I'm no expert). The same applies when calculating the foreign dividend deduction - in some cases it can actually be beneficial to increase your taxable income, because that also increases the amount of deduction you can claim (but be careful because it can increase national health insurance premiums and residence tax too).

[Tkydon]

Japanese Dividends
If the Dividends are from Japanese companies, then you can claim the 'Credit For Dividends' which is available to offset double taxation on the Dividends when using the Aggregate Taxation Method. This Deduction is NOT available on Overseas Dividends.

If the Dividends are from Japanese companies, then with the 'Credit For Dividends', it would be advantageous to use the Aggregate Taxation Method if your Total Taxable income after all Allowances and Deductions is Less Than somewhere between Y8M and Y9M. It depends on the breakdown of income and which marginal tax bands the Dividend Income falls in to, being the marginal income. Greater Than about Y8M, and the Separate Taxation Method Dividend Tax Rate is better. You cannot use the 'Credit For Dividends' with the Separate Taxation Method.
If the dividends are held in a Tokutei Account, then Separate Method Dividend Taxes will have been withheld (20.315%). It May be to your benefit to do the Kakutei Shinkoku, convert from the Separate Method Dividend Taxes withheld to the Aggregate Tax Method and claim the 'Credit For Dividends'...
The 'Credit For Dividends' is calculated as 10% for Dividend Income under Y10M and 5% for Dividend Income over Y10M.
Once you have selected the Aggregate Taxation Method or Separate Taxation Method for the Dividend Income, you cannot go back and change it for that Tax Year, so do the calculations and select the right method for you.
The calculation is a little complicated, so you should do the calculations or consult with a professional.

Overseas Dividends
You CANNOT use the 'Credit For Dividends' against overseas dividends. Therefore, it would only be advantageous, from a purely tax rate perspective, to use the Aggregate Taxation Method if your Total Taxable income after all Allowances and Deductions is Less Than somewhere between Y3M and Y4M. Again, it depends on the breakdown of income and which marginal tax bands the marginal Dividend Income falls in to. Greater Than about Y3.5M, and the Separate Method Dividend Tax Rate is better.
If the dividends are held in a Tokutei Account, then any Foreign Withholding Taxes (10-15%) and Separate Method Dividend Taxes (20.315% on the remainder) will have been withheld (Total 28.28% or 32.27% respectively).
If the dividends are held in an Overseas Account, then Only Foreign Withholding Taxes (10-15%) will have been withheld, if you filed the correct forms to qualify for the reduced rate of withholding as a Resident of Japan for Tax Purposes under the Japan-XXX Tax Treaty.

In order to claim the 'Foreign Tax Credit' for Foreign Taxes withheld, you would have to do the Kakutei Shinkoku (reducing the total 28.28% or 32.27% respectively to Total 20.315%), and it May be to your benefit to convert from the Separate Method Dividend Taxes withheld to the Aggregate Tax Method...
Once you have selected the Aggregate Taxation Method or Separate Taxation Method for the Dividend Income, you cannot go back and change it for that Tax Year, so do the calculations and select the right method for you.
The calculation is a little complicated, so you should do the calculations or consult with a professional.


Aggregate Taxation Method - Total Taxable income after all Allowances and Deductions
Japanese Dividends - If the Dividend Income after deducting the 'Credit For Dividends' falls into the Bottom Aggregate Tax Brackets
Overseas Dividends - If the Dividend Income falls in the Bottom Aggregate Tax Brackets
(May straddle Tax Bands...)

Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band Marginal Tax rate (％) National + Reconstruction + Residents' Taxes = Total

Under 1,950,000 - 5% + 0.105% + 10% = 15.105%

1,950,000 to 3,300,000 - 10% + 0.21% + 10% = 20.21%

These Tax Bands are both lower than the Separate Taxation Method Dividend Tax Rate of 20.315%, but over

3,300,000 to 6,950,000 - 20% + 0.42% + 10% = 30.42%

6,950,000 to 8,999,000 - 23% + 0.483% + 10% = 33.483%

etc..

this Total Aggregate Tax Rate (30.42% and upwards) is greater than the Separate Taxation Method Dividend Tax Rate of 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes). Therefore, over about Y3.5M it would be better, from a purely tax rate perspective, to use the Separate Taxation Method.

Finally, if the dividends are held in a Tokutei Account in Japan, and Separate Taxation Method Dividend Taxes have been withheld at 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes) on the amount Net of Foreign Withholding Taxes (so 20.315%, 28.28% or 32.27%), then the Residents' Taxes withheld are 5%, 4.5% or 4.25%, then you should mark a Circle at the bottom of the Kakutei Shinkoku Form B - Page 2 in the box where it states:
給与、公的年金等以外の所得に係る住民税の徴収方法 - How to collect residence tax on income other than salary, public pension, etc.
特別徴収 - Tokutei Collection

to lock in the 5%, 4.5% or 4.25%, so that you don't have to pay the 10% Aggregate Residents' Taxes, bringing the total tax rate down to

Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band Marginal Tax rate (％) National + Reconstruction + Residents' Taxes = Total
(May straddle Tax Bands...)

Under 1,950,000 - 5% + 0.105% + 5% = 10.105%
Under 1,950,000 - 5% + 0.105% + 4.5% = 9.605%
Under 1,950,000 - 5% + 0.105% + 4.25% = 9.355%

1,950,000 to 3,300,000 - 10% + 0.21% + 5% = 15.21%
1,950,000 to 3,300,000 - 10% + 0.21% + 4.5% = 14.71%
1,950,000 to 3,300,000 - 10% + 0.21% + 4.25% = 14.46%

3,300,000 to 6,950,000 - 20% + 0.42% + 5% = 25.42%
3,300,000 to 6,950,000 - 20% + 0.42% + 4.5% = 24.92%
3,300,000 to 6,950,000 - 20% + 0.42% + 4.25% = 24.67%

6,950,000 to 8,999,000 - 23% + 0.483% + 5% = 28.483%
6,950,000 to 8,999,000 - 23% + 0.483% + 4.5% = 27.983%
6,950,000 to 8,999,000 - 23% + 0.483% + 4.25% = 27.733%



Once you have selected the Aggregate Taxation Method or Separate Taxation Method for the Dividend Income, you cannot go back and change it for that Tax Year, so do the calculations and select the right method for you.
The calculation is a little complicated, so you should do the calculations or consult with a professional.


Did I forget anything?

[Moneymatters]

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Did I forget anything?
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Many thanks both. That’s gone a big way to clear the murky waters!

Tkydon from where I’m standing the only thing you may have forgotten is to take a bow!