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Question on income tax and income drawdown
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xxxxx
Posted: 23 February 2012 16:59:16(UTC)
#1

Joined: 22/04/2010(UTC)
Posts: 50
My wife has a small company pension with tax deducted at source. She also has a Sipp investing in individual shares, producing dividend income. If she goes into income drawdown and takes the dividend income, is there any tax to pay? Her total income will be below the 40% tax threshold. I assume no additional tax will be payable because it has already been deducted albeit at 10 per cent as per usual with dividend income. She knows the risks of being invested in individual company shares etc but for various reasons is very comfortable with her decision. Can anyone help with this question?
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James Ingham
Posted: 23 February 2012 18:17:05(UTC)
#2

Joined: 23/02/2012(UTC)
Posts: 2

Was thanked: 1 time(s) in 1 post(s)
Although dividends have already had a 10% tax credit deducted the income taken as drawdown from your wife's SIPP will still be subject to tax at basic and or higher rate as appropriate I think because tax relief was allowed on the original contributions to the SIPP.
Sorry to be the bearer of bad news!
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xxxxx on 23/02/2012(UTC)
Tony Neal
Posted: 23 February 2012 18:35:40(UTC)
#3

Joined: 19/12/2011(UTC)
Posts: 1

Was thanked: 1 time(s) in 1 post(s)
Unfortunately your wife will have to pay tax again on the dividend income when she takes an income from the SIPP. For this blame Gordon Brown, who abolished the tax credits on dividends received by pension funds. It seems most unfair to be taxed twice on the dividends, especially when one considers that the major contribution to overall returns from share investments over a long period is due to the accumulation of dividends rather than from capital gains.
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xxxxx on 23/02/2012(UTC)
xxxxx
Posted: 23 February 2012 19:17:59(UTC)
#4

Joined: 22/04/2010(UTC)
Posts: 50
Many thanks. I will pass the information on to her. I thought it was too good to be true.
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neville partridge
Posted: 23 February 2012 19:22:23(UTC)
#5

Joined: 23/02/2012(UTC)
Posts: 2
Depending on your circumstances the 25% tax free lump sum might be available which would ease the pain of paying tax. N
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banjofred
Posted: 23 February 2012 20:10:40(UTC)
#6

Joined: 14/03/2011(UTC)
Posts: 235
Absolutely I am afraid...

I am in the same boat where I cant touch any of my pension as I would pay 40% tax.

Of course if I wait until I retire I may only then pay 20% tax, so the wastage of taking it now is the difference - 20%

Also when you retire you still have the personal allowance but no income, so the first few grand of your drawdown money would not be taxed, until the allowance is used up.

Its an insidious trap. The theory that you have had tax relief on the contributions so now you can pay a whacking great tax on your drawings is what does not endear me to pensions.

Best to take the 25% lump sum ASAP and stick it in an ISA where it is your money. There are rumours the Eton boys might chop this allowance. You can take it from 50

Once you go into drawdown you have to pay for a statement every three years (HL is £90 others more) and Clegg and his awful liberals changed the tax to beneficiaries from 30% to 55% - so if anything happened and she left the sipp to family is 55% tax first to the CONning Libertines

I know this as I have been checking out with HL and the taxman over past month.

The good news is .....................




er sorry no good news
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Maverick
Posted: 23 February 2012 22:44:02(UTC)
#7

Joined: 04/10/2010(UTC)
Posts: 59

Thanks: 1 times
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Banjofred - Get it right - you have to wait till 55 to take any pension now.

Also everyone whingeing about the tax on pensions going up from 30% to 55% completely ignores the fact that pensions have now been taken out of the scope of Inheritance Tax (again). Previously you could be charged up to 82% in a mixture of income tax and inheritance tax if you passed the pension on to a family member.

The European Court ruled that pensions were pay. Pay is taxed. What you get with a pension is not tax relief, it is tax deferral.
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banjofred on 24/02/2012(UTC)
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