SIPP Tax on Dividends

Old_Slaphead

If I had say £10,000 invested in a share that had a net yield of 3.2%, how much tax rebate would I get on this investment if it were held within a SIPP (I appreciate there may be management charges offsetting any gain) ?

Thanks

EdInvestor

Dividends in SIPPs are tax free.

Amanita_2

Pension funds ( which include SIPPs) are unable to recover tax deducted at source on dividends from UK equities.

This is part of Gordon Brown's raid on pension funds.

noh

Amanita wrote: »

Pension funds ( which include SIPPs) are unable to recover tax deducted at source on dividends from UK equities.

This is part of Gordon Brown's raid on pension funds.

Thats because there is no tax deducted from dividends at source.

noh

Old_Slaphead wrote: »

If I had say £10,000 invested in a share that had a net yield of 3.2%, how much tax rebate would I get on this investment if it were held within a SIPP (I appreciate there may be management charges offsetting any gain) ?

Thanks

There is no tax rebate because no tax has been paid.
The advantage of holding the shares in a pension wrapper is the tax relief on the original purchase funds and the fact that higher rate tax payers have no tax liability on the dividends as they would have if held outside of a pension or ISA.

Old_Slaphead

noh wrote: »

There is no tax rebate because no tax has been paid.
The advantage of holding the shares in a pension wrapper is the tax relief on the original purchase funds and the fact that higher rate tax payers have no tax liability on the dividends as they would have if held outside of a pension or ISA.

So if I transferred directly held shares into a SIPP there's no financial benefit other than the initial 25% tax reclaim (I'm a basic rate taxpayer)? Obviously there would also be no CGT on an potential gain

The downside would be some SIPP management charges.

Amanita_2

"There is no Capital Gains Tax (CGT) or Income Tax on the pension investments within a SIPP except dividend tax credit of 10% which cannot be reclaimed and some withholding taxes which operate in different countries."

yelf

dividends in sipps are tax free???????????????????//

Debt_Free_Chick

Seems to be much confusion here ......

If you receive dividends from shares held or via a unit trust etc, then what you receive is deemed to be a payment net of tax at 10%.

You then have to add the dividend income to your other income, deduct your personal allowance and see whether you are a basic rate or higher tax payer.

If you are a basic rate tax payer, then you effective owe a further 10% tax on the dividends received - as your tax rate is 20% and you are deemed to have paid 10% on the dividend. If you're a higher rate tax payer, you effectively owe a further 30% tax.

If you pay no tax, you can not get the 10% tax credit back, as you haven't paid that tax - the Company paying the dividend paid the tax (as dividends are paid out of profit after tax).

If the dividend is from investments held in a SIPP, then you owe no further tax. You do not declare this dividend as part of your income as you've not received it - the SIPP has. The SIPP owes no further tax either, as it's a "tax free" environment, at least as far as dividends are concerned.

However, you can not get the 10% tax paid on the dividend back - this was GB's raid on pension funds as before 1998, pension funds (or the investment managers) could claim back the tax credit and effectively pay it into the pension fund, boosting its value.

So the difference between receiving dividends from non-pension investments and dividends received by registered pension schemes is that you avoid any additional tax liability that would arise, if the dividend had been paid to you, rather than paid to your pension.

HTH

noh

Debt_Free_Chick wrote: »

Seems to be much confusion here ......

If you receive dividends from shares held or via a unit trust etc, then what you receive is deemed to be a payment net of tax at 10%.

You then have to add the dividend income to your other income, deduct your personal allowance and see whether you are a basic rate or higher tax payer.

If you are a basic rate tax payer, then you effective owe a further 10% tax on the dividends received - as your tax rate is 20% and you are deemed to have paid 10% on the dividend. If you're a higher rate tax payer, you effectively owe a further 30% tax.................

HTH

Not entirely correct.

When you receive a dividend it comes with an attached 10% tax credit.
Which satisfies the tax liability of 10% on dividends for lower rate tax payers.

Higher rate taxpayers have a tax liability of 32.5%.
10% of that is satisfied by the tax credit therefore a further 22.5% is due.

Explained here:-
http://www.hmrc.gov.uk/taxon/uk.htm

EdInvestor

It used to be possible before the tax system changed (when divis were actually taxed which they aren't now) for pension funds and ISAs and non taxpayers to claim the tax back.That's where the confusion arises. Now this isn't possible, as no tax is paid on divis, instead they come with a tax credit (which means that in reality they are tax free to basic rate taxpayers.)

The position was further confused by a transition period in which ISAs were still allowed to claim back (unpaid notional) tax, which only ended quite recently, whereas the tax change was more than 10 years ago.

Hopefully this confusion will all soon come to an end.