Dividends taking you into HR Dividend Tax

[mearnsfool]

Case A

No dividends but your income is £1,000 into the HR band and you pay £400 tax on that final £1,000 of earnings. You then pay £800 into a SIPP just before the end of the tax year and you get tax relief added to your payment into the fund and you claim extra tax relief via your tax return.

Result no real HR tax to pay.

Case B

Your income less dividends is £2,000 below the HR tax threshold, You received a further £5,000 in dividends that are not ISA protected.

Dividend relief reduces the taxable dividend to £3,000. That is £2,000 at 7.5% dividend tax and £1,000 at 32.5% dividend tax. You are now paying £250 in higher rate dividend tax as well as £75 standard rate dividend tax on that final £1,000 of dividends.

Does paying say around £1,000 into a SIPP have a similar effect here in that it negates the higher rate tax as in Case A or does HMRC treat HR dividends and the effect of paying into a SIPP in a different way.

[pochisoldi]

Case A

No dividends but your income is £1,000 into the HR band and you pay £400 tax on that final £1,000 of earnings. You then pay £800 into a SIPP just before the end of the tax year and you get tax relief added to your payment into the fund and you claim extra tax relief via your tax return.

Result no real HR tax to pay.

Case B

Your income less dividends is £2,000 below the HR tax threshold, You received a further £5,000 in dividends that are not ISA protected.

Dividend relief reduces the taxable dividend to £3,000. That is £2,000 at 7.5% dividend tax and £1,000 at 32.5% dividend tax. You are now paying £250 in higher rate dividend tax as well as £75 standard rate dividend tax on that final £1,000 of dividends.

Does paying say around £1,000 into a SIPP have a similar effect here in that it negates the higher rate tax as in Case A or does HMRC treat HR dividends and the effect of paying into a SIPP in a different way.

Case B reality, as I believe it...

You get £5000 in dividends.The first £2000 is taxed at 0% regardless of the band it falls in, the balance gets taxed at the appropriate rate.
In this case the appropriate rate is 32.5% on £3k.

In this case, every £1000 (gross) you pay into your pension or give to charity via gift aid, increases your basic rate band by £1000.
For every £1000 of dividends you move from higher rate to the basic rate band you save £250. (32.5%-7.5%).
For every £1000 (gross) earnings you move from higher rate to basic rate band, you save £400. (like you said in Case A).

These "dividend allowances" and "savings allowances" are not tax free - they are taxed at 0%, and fall within the appropriate basic/higher/additional tax rate bands.
It is entirely possible to be a higher rate tax payer, yet pay no tax at the higher rates! - examples available on request.

PochiSoldi

[mearnsfool]

Thanks for taking the time to reply pochisoldi.