Pension tax relief on dividend income

Pension tax relief on dividend income

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Hello,

I hope that one of you may be able to help me with this.

I have a client whose only source of income is dividends. His annual  income from dividends is roughly £100,000.

He wants to start making contributions to a personal pension scheme in order to reduce his dividend tax liability. My question is whether pension contributions from dividend income qualify for tax relief? I am unsure over this due to the difference between dividend income and pensionable income. 

Also, if it does qualify for tax relief, than would the relief be at the dividend tax rate, as the client is neither a 20% or 40% tax payer?

Thanks.

Replies (3)

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By JoeOBrien1983
21st Feb 2014 09:26

Hello

Investment income and dividends don't count as relevant UK earnings for personal pension contributions. As a result he, personally, would only be able to contribute a maximum of either his salary (does he pay himself a salary above the LEL for state benefits?) or £3,600 gross, whichever is higher.

He could of course have contributions paid in from his company which, as long as they meet the wholly and exclusively test, could contribute up to the annual allowance. He could also utilise carry forward, if he hasn't made maximum pension contributions in previous years, if he wanted to pay in more.

 

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Replying to DCR:
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By ACDWebb
21st Feb 2014 09:39

...and

JoeOBrien1983 wrote:
He could also utilise carry forward, if he hasn't made maximum pension contributions in previous years, if he wanted to pay in more.

... and presuming there was a pre existing policy in place, albeit with no contributions paid to it, in the years from which the carry forward is to be made
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By JoeOBrien1983
21st Feb 2014 10:56

Yes

Absolutely ACDWebb. Important.

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