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Posted Sun, 10 Sep 2023 11:59:34 GMT by MakeTaxSimpler
Hello, I have been unable to find anything to confirm what is quite a simple query. As I understand it, dividend income contributes to defining whether or not you are a higher rate tax payer. You pay 33.8% tax on dividend income above the higher rate threshold. You can claim higher rate tax relief on pension contributions at 20% upto the amount of higher rate tax paid. But can you claim this relief on Dividend income? Example 1: Higher rate threhold £50k, £40k salary, £20k dividend income, £5k personal pension contribution (including basic rate relief). Can £1k (£5k * 0.2) of higher rate pension relief be claimed? If the answer to Example 1 is Yes: Example 2: All as per Example 1 but pension contribution is £15k. Is the higher rate pension relief capped at £3380 (£10k*33.8%), as that is all the higher rate tax that has been paid? Many thanks in advance for any assistance.
Posted Mon, 18 Sep 2023 14:27:57 GMT by HMRC Admin 19

Personal pension relief, extends the basic rate band of £37700, by the amount of pension paid into your pension scheme. After your income is taxed at the relevant rates, your dividends are then taxed after the dividend allowance is deducted. If any of the basic rate band remains then your dividends would be taxed at 8.75%, until all of the basic rate is utilised, with the remaining dividends taxed at 33.75% and then 39.35%.

Thank you.

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