Pay SIPP contribution from Ltd company dividend

RemotecUK

Is it possible to pay a SIPP contribution from a Ltd. company dividend and gain tax relief?

In this scenario, you have received a directors dividend from a Ltd company and want to invest it in to your SIPP (as opposed to paying directly from the Ltd company in this specific scenario).

Would tax relief be granted on this contribution?

Or does tax relief only apply on money you have received via your PAYE salary?

Self assessment isn't open yet for this tax year so I have been unable to test this by plugging in the numbers.

Thanks in advance.

dunstonh

Is it possible to pay a SIPP contribution from a Ltd. company dividend and gain tax relief?

You cannot use the dividends for income for contribution allowance purposes but the source of funds is not an issue.
It would be a lot cleaner and tax efficient to sacrifice the dividends and have the pension contribution made by the limited company.  In that case, the personal contribution allowance wouldn't matter. 

What is your link to the limited company? - is it yours

RemotecUK

Yes.
I'm winding down the company.
For 2023-24 I paid from the Ltd directly into the SIPP.
I have some remaining funds I planned to take as a dividend as the company will shortly be in a dormant state.
I was thinking I could also put these into my SIPP and claim tax relief.
Thinking about it, the company won't be dormant now until the end of this month so I could still pay from the Ltd to the pension fund.

Marcon

RemotecUK said:

Yes.
I'm winding down the company.
For 2023-24 I paid from the Ltd directly into the SIPP.
I have some remaining funds I planned to take as a dividend as the company will shortly be in a dormant state.
I was thinking I could also put these into my SIPP and claim tax relief.
Thinking about it, the company won't be dormant now until the end of this month so I could still pay from the Ltd to the pension fund.

If the company is making contributions to your SIPP then it isn't dormant while it continues to do so. If it becomes dormant, it would wake up again if it made such a contribution, because doing so would be a 'significant accounting transaction'.

MeteredOut

Notwithstanding the dormancy discussion, you need to think about you and the company as separate entities.

If your company pays you a dividend, then that's what it has done, and thats it. You now have the money and need to pay the relevant tax etc, and what you do with it is your choice.

You can then choose to invest some/all of that money into your SIPP, and claim tax relief as you would if the money came from any other source (eg, salary, inheritance etc).

But that is you personally investing in your SIPP, nothing to do with the company, so would have to comply with the annual allowance and qualifying earnings limits to receive the relief.

RemotecUK

Thanks.
As the company won't be dormant until the end of this month I will make the payment from the Ltd instead.

RemotecUK

Just to add, as the company isn't trading now, there will be no corporation tax benefit to paying into the SIPP from the Ltd for the current company financial year.

If I took the money as a dividend however, could I pay this into the SIPP and then claim tax relief against that contribution on my self assessment.

This would be advantageous as corp. tax is already at zero for the companies financial year.

BoGoF

RemotecUK said:

Just to add, as the company isn't trading now, there will be no corporation tax benefit to paying into the SIPP from the Ltd for the current company financial year.

If I took the money as a dividend however, could I pay this into the SIPP and then claim tax relief against that contribution on my self assessment.

This would be advantageous as corp. tax is already at zero for the companies financial year.

How much are we talking? Will you have any relevant earnings?

dunstonh

RemotecUK said:

Just to add, as the company isn't trading now, there will be no corporation tax benefit to paying into the SIPP from the Ltd for the current company financial year.

If I took the money as a dividend however, could I pay this into the SIPP and then claim tax relief against that contribution on my self assessment.

This would be advantageous as corp. tax is already at zero for the companies financial year.

Is there any retained profits?     as the pension contribution is a business expense, the accountant can make adjustments that adjust the taxation from previous years.   A call to your accountant to verify that you qualify for that should be done.

Remember that if you make a personal contribution, it can only be against earned income (or £3600 if little or no earned income).  Dividends do not count.  e.g. No PAYE but £30k in dividends would limit you to just £3600 gross into the pension personally.

RemotecUK

The amount is approx £5,000.

The value is from retained earnings.

Earned PAYE income this tax year will be above £5,000 so that limit should not be exceeded.

Thanks again.

Marcon

RemotecUK said:

The amount is approx £5,000.

The value is from retained earnings.

Earned PAYE income this tax year will be above £5,000 so that limit should not be exceeded.

Thanks again.

I'm not sure the penny has dropped.

If the company makes the contribution, the contribution can be more than your earnings.

dunstonh said:

RemotecUK said:

Just to add, as the company isn't trading now, there will be no corporation tax benefit to paying into the SIPP from the Ltd for the current company financial year.

If I took the money as a dividend however, could I pay this into the SIPP and then claim tax relief against that contribution on my self assessment.

This would be advantageous as corp. tax is already at zero for the companies financial year.

Is there any retained profits?     as the pension contribution is a business expense, the accountant can make adjustments that adjust the taxation from previous years.   A call to your accountant to verify that you qualify for that should be done.

Ring your accountant, or see https://www.gov.uk/guidance/corporation-tax-calculating-and-claiming-a-loss#:~:text=1%20April%202017.-,Carry%20a%20trading%20loss%20back,period%20(not%20accounting%20period).

A company contribution is almost certainly the better bet financially.