Does dividend income count as drawdown?

Charrid

I have a SIPP which is invested in shares and bonds and produces a nice dividend income which is automatically reinvested each month.

If I decide to have the dividend income paid into my bank account, rather than reinvested, would that mean that I am in drawdown?

I think the answer is "yes" but wanted to check.

jamesd

Yes.

The important distinction is more likely to be whether you're taking it from a pot where you've already taken the 25% tax free lump sum or not.

Charrid

Thanks, James. Why is the distinction important? Taking the dividend income is something I am considering (or maybe waiting until I get the state pension in 2019). I would be happy to leave the 25% there but would also be happy to take it and put it into my stock and shares ISA (withdraw £40,000 and then put £20,000 into my ISA on 5 April 2018 and then another £20,000 on 6 April 2018).

Techno

I think the reason is, each time you draw down (and if you haven't already taken your tax free 25%) then 25% of what you draw down is tax free and 75% taxable depending on your income so if you draw down £4000 in a year the £1000 is tax free and £3000 taxable. If you have already taken a 25% lump sum then it is all taxable.

Charrid

Wow. So taking a variable monthly income of dividends from my SIPP would be really complicated from a tax perspective.

Looks like it would be simpler to withdraw 25% of my SIPP over the end of the tax year and invest it in my ISA. then start taking dividends.

Thanks very much.

dunstonh

Wow. So taking a variable monthly income of dividends from my SIPP would be really complicated from a tax perspective.

Yes. It would also be a very unusual way of doing it as people tend to go with a fixed monthly amount (albeit one they can amend).

Looks like it would be simpler to withdraw 25% of my SIPP over the end of the tax year and invest it in my ISA. then start taking dividends.

Or do phased flexi-access drawdown (when you need the income) as there is often no point taking money out of the pension just to put it in the ISA (pension is already tax free and its outside of the estate. ISA is tax free but within the estate). There can be justifications for doing it. However, the general rule of thumb is to only take out what you need when you need it and in a way that is tax efficient.

kidmugsy

Charrid wrote: »

I have a SIPP which is invested in shares and bonds and produces a nice dividend income which is automatically reinvested each month. If I decide to have the dividend income paid into my bank account, rather than reinvested, would that mean that I am in drawdown

But why would you adopt such an exotic policy?

enthusiasticsaver

Yes it would count as drawdown. We take dividends from our income funds in stocks and shares isas but don't plan on doing it from SIPP.