Calculating SIPP contribution..?

C_Mababejive

Hi all,

Its close to year end so i need to take some actions.

Maths is not my strong point !

My situation is that my PAYE income falls within the basic rate band though close to the higher limit.

I have investment income that drives my total income well into the higher rate band .

My primary aim is to ensure that all my divi income is paid at the basic rate .

So how do i calculate how much to pay into my sipp (before TR) to achieve this ?

Thanks

Dazed_and_confused

Presumably your PAYE income is earnings not pension and contribution limits aren't an issue.

If so you could start by working out your expected tax liability ignoring these proposed pension contributions.

This will show how much of the dividend income will be charged at 0%, 7.5% and 32.5% and you can then work out how much of a (net) pension contribution to make.

Dazed_and_confused

** This was in response to a post which had now been deleted **

But there is no "tax free allowance for dividends".

In the example you give £2,000 of the dividends would be taxed at 0% (the dividend nil rate).

But add another £100 income to the example and the High Income Child Charge could come into play and that would be based on dividend income of £10,000 not £8,000.

Likewise if the op is an elderly pensioner claiming Married Couple's Allowance then this could be reduced because of the £10,000 dividend income, not £8,000.

cloud_dog

C_Mababejive wrote: »

I have investment income that drives my total income well into the higher rate band .

I assume the investment income you mention is unwrapped non-ISA income/divi?

C_Mababejive

cloud_dog wrote: »

I assume the investment income you mention is unwrapped non-ISA income/divi?

Yes it is unfortunately. I'm slowly migrating it

cloud_dog

So this unwrapped income....

1. Do you need / rely on this income?
2. Do you fully utilise your CGT limit each year?

Basically could you switch investments into similar non income investments and maximise your CGT limit instead?

C_Mababejive

Thanks,,my plan was/is to use up annual CGT allowance and either buy back the same investments within an ISA or buy diversified products within an ISA. Most of it is RDSB which as you know produces good divis x4 pa. The idea of buying unsheltered non income products hadnt occured to me. Presumably we are talking about accumulation funds and im a bit unclear about how they might be taxed each year. Some acc funds have a taxable element some dont ??

To my untrained eye it would also seem follow to bed and sipp the RDSB because whereas now i would pay say 7.5% tax,within a sipp id pay maybe 20 % on any money drawn in future. I dont need the income at the moment.

cloud_dog

What is going in to your ISA?

As an aside, I've literally just posted a question to forum members asking how they structure their investments across account types, i.e. SIPP / ISA with regard to taxation.

cloud_dog

C_Mababejive wrote: »

Presumably we are talking about accumulation funds and im a bit unclear about how they might be taxed each year. Some acc funds have a taxable element some dont ??

Yes, even ACC funds income can be assessed as income so, you need to be aware of that.

Is it possible to use a different vehicle, i.e. Investment Trusts or ETFs
that do not produce income and are therefore not subject to income tax considerations? Would you be comfortable using one of these?

C_Mababejive

cloud_dog wrote: »

Yes, even ACC funds income can be assessed as income so, you need to be aware of that.

Is it possible to use a different vehicle, i.e. Investment Trusts or ETFs
that do not produce income and are therefore not subject to income tax considerations? Would you be comfortable using one of these?

Yes im ok with ITs and ETFs ,, i guess i hadn't really looked at them as a way of using them to mitigate tax. Essentially i suppose outside of an ISA i'd be trading a reduction of short term income tax for a forward potential CGT position that could slowly be used up so as not to pay any CGT.. A brief look at a lot of ITs shows some paying very low divi yiled so i guess more geared toward growth.. I guess my growth window is minimum 5 years and could be more quite easily.

cloud_dog

As you mentioned that 'you don't need the income at the moment', the low or better no yield is what you would want, assuming the investment meets your requirement?