SIPP share dividend

dantaden

Hello. Newbie question please.
I have SIPP acc with freetrade. If I buy some share in that acc:

1. will the dividends be tax free and can i reinvest the dividends within SIPP acc (no withdrawal)
2. can I sell those share and reinvest the money within SIPP acc (no withdrawal)

Please advise

Marcon

dantaden said:

Hello. Newbie question please.
I have SIPP acc with freetrade. If I buy some share in that acc:

1. will the dividends be tax free and can i reinvest the dividends within SIPP acc (no withdrawal)
2. can I sell those share and reinvest the money within SIPP acc (no withdrawal)

Please advise

Do you mean 'you' buying them with your own money (i.e. outside the SIPP), or buying them with funds within your SIPP?

dantaden

@Marcon
1. depositing my money in my freetrade SIPP acc (till I reach my annual allowance)
2. buying them with deposited money 

Marcon

dantaden said:

@Marcon
1. depositing my money in my freetrade SIPP acc (till I reach my annual allowance)
2. buying them with deposited money 

In that case all the trading is within your SIPP and you have all the usual tax advantages of a pension scheme. Dividends are tax free within a SIPP and if your SIPP sells the shares, then the funds are automatically kept within your SIPP for reinvestment.

dantaden

That makes sense now. Thank you @Marcon
So within my SIPP acc, if I get dividend, or I sell etf/shares or gov deposits the tax relief, that will be uninvested money but within the benefits of SIPP...which I can reinvest within. 

Can you also tell, as a high-rate tax payer, the 20% which I will claim in self assessment, where will I get the funds from HMRC? in my personal bank acc or in SIPP acc?

Dazed_and_C0nfused

dantaden said:

That makes sense now. Thank you @Marcon
So within my SIPP acc, if I get dividend, or I sell etf/shares or gov deposits the tax relief, that will be uninvested money but within the benefits of SIPP...which I can reinvest within. 

Can you also tell, as a high-rate tax payer, the 20% which I will claim in self assessment, where will I get the funds from HMRC? in my personal bank acc or in SIPP acc?

There is no fixed extra 20% tax relief.

The amount of higher rate relief depends on your overall tax position.  The gross contribution increases your basic rate band meaning more tax can be payable at 20% and less at 40% but if you contribute say £5,000 and only pay higher rate tax on £2,000 you can only get higher rate relief on £2,000.

Any personal tax saving comes back to you, it never gets added to your SIPP.

Are you already completing a Self Assessment return for some other reason?

dantaden

@Dazed_and_C0nfused
I have been asked by HMRC to file the self assessment return.

what if lets say annual salary(taxable gross) is £85k, and I then pay £32k to SIPP. In this case, extra 20% tax relief can be claimed on whole £32k right?

and that arises one more confusion:
For basic rate tax payer annual allowance is £32k own money + £8k 20% tax relief = £40k
For high-rate tax payer, I can claim further 20% tax relief in self assessment. So does that mean I can deposit only £24k in SIPP in a financial year (£24k + £8k 20% tax relief via provider in SIPP +£8k 20% tax relief in self assessment= £40k)

Dazed_and_C0nfused

dantaden said:

@Dazed_and_C0nfused
I have been asked by HMRC to file the self assessment return.

what if lets say annual salary(taxable gross) is £85k, and I then pay £32k to SIPP. In this case, extra 20% tax relief can be claimed on whole £32k right?

and that arises one more confusion:
For basic rate tax payer annual allowance is £32k own money + £8k 20% tax relief = £40k
For high-rate tax payer, I can claim further 20% tax relief in self assessment. So does that mean I can deposit only £24k in SIPP in a financial year (£24k + £8k 20% tax relief via provider in SIPP +£8k 20% tax relief in self assessment= £40k)

You have misunderstood how the tax relief works.  There is no fixed 20%. 

If you contribute £40k gross i.e. a payment of £32k from you and £8k in basic rate tax relief added by the pension company then your basic rate band of £37,700 will be increased by £40,000 to £77,700

Your tax liability wil be calculated using the increased basic rate band so more tax is paid at 20% and less at 40%.  This might work out as saving you £8,000 but it's highly unlikely to be exactly that amount.  And could be as little as £0.20p if you only paid higher rate tax on £1 of your income.

If you only contribute £24k in the first place, i.e. the net payment, then the pension company will add £6k in basic rate tax relief making a gross contribution of £30k.

Any personal tax saving always comes back to you, it never gets added to your pension fund so you will only ever have £30k in your pension fund in the that scenario.

pantaiema

What about withholding tax for foreign stock such as US stock, etc. Is it still tax free or it is already deducted at source ?
I understand your tax rate on dividend will be reduced by completing w8-ben form but is there still tax on dividend to pay or not?

dantaden

Dazed_and_C0nfused said:
You have misunderstood how the tax relief works.  There is no fixed 20%. 

If you contribute £40k gross i.e. a payment of £32k from you and £8k in basic rate tax relief added by the pension company then your basic rate band of £37,700 will be increased by £40,000 to £77,700

Your tax liability wil be calculated using the increased basic rate band so more tax is paid at 20% and less at 40%.  This might work out as saving you £8,000 but it's highly unlikely to be exactly that amount.  And could be as little as £0.20p if you only paid higher rate tax on £1 of your income.

If you only contribute £24k in the first place, i.e. the net payment, then the pension company will add £6k in basic rate tax relief making a gross contribution of £30k.

Any personal tax saving always comes back to you, it never gets added to your pension fund so you will only ever have £30k in your pension fund in the that scenario.

so £50270 is the basic rate cut off.
if my salary is say £100k, and i deposit £32k in SIPP, I can claim 20% tax relief on whole £32k.
if my salary is say £60k, and i deposit £32k in SIPP, I can claim 20% tax relief on £9730.

In effect, I can claim fixed 20% tax relief on (salary-50270) or £32k whichever is lower (and greater than 0). Please confirm

But the main point is the max I can deposit is £32k in SIPP in 1 financial year(not counting any carry fwd)

dantaden

Dazed_and_C0nfused said:
You have misunderstood how the tax relief works.  There is no fixed 20%. 

If you contribute £40k gross i.e. a payment of £32k from you and £8k in basic rate tax relief added by the pension company then your basic rate band of £37,700 will be increased by £40,000 to £77,700

Your tax liability wil be calculated using the increased basic rate band so more tax is paid at 20% and less at 40%.  This might work out as saving you £8,000 but it's highly unlikely to be exactly that amount.  And could be as little as £0.20p if you only paid higher rate tax on £1 of your income.

If you only contribute £24k in the first place, i.e. the net payment, then the pension company will add £6k in basic rate tax relief making a gross contribution of £30k.

Any personal tax saving always comes back to you, it never gets added to your pension fund so you will only ever have £30k in your pension fund in the that scenario.

Kindly ignore the prev post as the figures were incorrect

so £50270 is the basic rate cut off.
if my salary is say £100k, and i deposit £32k in SIPP, I can claim 20% tax relief on whole £40k.
if my salary is say £60k, and i deposit £32k in SIPP, I can claim 20% tax relief on £9730.

In effect, I can claim 20% tax relief on (salary-50270) or £40k whichever is lower (and greater than 0). Please confirm

But the main point is the max I can deposit is £32k in SIPP in 1 financial year(not counting any carry fwd)