Tax in dividend income + pension + SIPP 7 August 2022 at 9:13PM in Cutting tax 6 replies 199 views

RobHT

Hello,

I wonder how it would work, with the current rules, the case of taxation if I have dividend income, pension and SIPP all together.
For the SIPP I believe it's the same as the standard pension scheme (compulsory contribution + employer), but I may never know!

I have a few questions:

1. Does a dividend fund count in the pension pot calculation?

I know that after 1M, I need to pay much more taxes, but I wonder if I should factor also my dividend "fund".

I strongly don't think so because I didn't sell in this scenario, I only take dividends.

2. When I'll get my pension (state pension + the standard pension scheme fund), shall I factor also the dividend income as income for taxes?

I need to explain better, currently I know that I'll need to pay a basic tax rate most probably, it will be difficult to invest in a dividend fund more than 1M, and the profit is usually around 3 - 3.5%, with the expenses, charges etc already excluded.

I wonder if the income that I'll receive (suppose 35k net) will add up to the the income of the pension scheme in order to be taxed like if I'm working, or does it follow the standard dividend tax scheme IF NO OTHER INCOME IS PRESENT?

The question comes from that specific scenario where I won't receive only the dividend income, which has low taxation, but I'll receive BOTH the dividend income + pension income + SIPP (eventually)!

Ideally, I should have all in ISA accounts, but it's not guaranteed, therefore, I'm considering the case of NO ISA here.

3. I also wonder what would happen if I sell stocks/funds in profit, shall I factor that in the income from pension, or exclude dividend income AND pension? This is is the direct consequence of the previous question , I strongly believe that in this case I'll need to pay the standard income tax rate, so all under one basket.

Dazed_and_C0nfused

Unwrapped dividend income i.e. not in an ISA, is taxable income just the same as State Pension or the taxable element of money taken from a SIPP.

If your dividend income exceeds £10k you will be required to complete an annual Self Assessment return.

There are currently 4 different rates of tax for dividend income, different to the basic, higher and additional rates charged on earnings or pension income.

Dividend nil rate

Dividend basic rate
Dividend higher rate
Dividend additional rate

Your final question strays into Capital Gains although your income tax position can have an influence on the Capital Gains rates charged.  You also have an annual exemption for capital gains, a bit like the Personal Allowance for income tax.

RobHT

Dazed_and_C0nfused said:

Unwrapped dividend income i.e. not in an ISA, is taxable income just the same as State Pension or the taxable element of money taken from a SIPP.

If your dividend income exceeds £10k you will be required to complete an annual Self Assessment return.

There are currently 4 different rates of tax for dividend income, different to the basic, higher and additional rates charged on earnings or pension income.

Dividend nil rate

Dividend basic rate
Dividend higher rate
Dividend additional rate

Your final question strays into Capital Gains although your income tax position can have an influence on the Capital Gains rates charged.  You also have an annual exemption for capital gains, a bit like the Personal Allowance for income tax.

Looking quickly at the big picture then, it seems better to sell the investment funds once you get the pension, and probably buy an house, assuming that the fund sale takes place in the ISA.

It's extremely disadvantageous to pay such high amount of taxes for dividends, just because I also get the pension and it needs to be taxed again!

In essence, they are all dividend income streams, but it gets heavily penalized when all is considered like normal income as employee.

hxjhxj

A couple of question to help tease out the issues.

1.  How much are your total private pension pots worth?

2.  How much is your dividend fund worth, and is it owned directly by you, if not how?

3.  When do you expect to retire? 

RobHT

hxjhxj said:

A couple of question to help tease out the issues.

1.  How much are your total private pension pots worth?

2.  How much is your dividend fund worth, and is it owned directly by you, if not how?

3.  When do you expect to retire? 

Thanks for the answer but I'll retire in 35 years if I follow the average people of my generation, otherwise, if my investments go well, also in less than 5...

Focusing on amounts will not rule out the best option here unfortunately, because whatever happens, I'm gonna pay the same amount of taxes/contributions if I was employed, with the only difference that I'll be a very old useless man and my salary will probably be horrible, taxing at the same level at that age seems a rip off.

I know I'll have some benefit as old man, but they will be nullified if I overtake an average salary, which will easily happen.
So, whatever happens, you need to keep working, and as as retired, they will eat up your cake anyway, no escape route.

hxjhxj

The questions were asked for a reason.  If you can't supply answers then despite what others say, they can't provide an answer either.  Good luck with your future!

RobHT

hxjhxj said:

The questions were asked for a reason.  If you can't supply answers then despite what others say, they can't provide an answer either.  Good luck with your future!

Allright

1. 19k (NOTHING)

2. Still don't have it, I mainly invest in exp growth companies, I was planning to load up in a dividend fund but the current market conditions are not ideal, so I'm waiting

3. In 35y distance with an average salary, but only 10y with my current salary which would be a bet, so I'd say in 25y.
If I retire so early, I'll probably work as a contractor some months each year, it won't be much of a pain anyway, only benefits.