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  1. #1
    maleksat
    Guest

    Does pension tax-relief apply to dividend income?

    This year I will get (let's say) 10,000 from dividends on top of an average salary in 20% tax range. Let's say 30,000

    5,000 of the dividend income is tax-free as the dividend allowance I think.

    The next 5,000 is taxed at 7.5%? Not 20%? - what gov.uk site tells me

    So if I made a 10,000 pension contribution in this tax-year..

    What happens? I don't pay 7.5% income tax on 5,000?
    Or I don't pay 20% tax on some of my other income?


    Hope that makes sense - think I understood what happened with pensions and normal salary but the dividend tax rate is much lower and so the pension tax-relief doesn't seem as good

  2. #2
    MarilynGew
    Guest
    Are you a director?

    Normally, directors would pay via the company and not make personal contributions. That is the more tax efficient method. Plus, you get the full annual allowance.

    If you are stuck doing personal contributions for some reason, then you can only contribute to the pension against your salary. Not the dividends.

    So, if the salary was 30k and dividends 10k then you can only pay 30k into the pension. The dividends do not support pension contributions.

  3. #3
    Ah thanks!
    I didn't know this.
    That will definitely be the best option then!


 

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