Are SIPP dividends tax-free?

SIPPs are a tax-efficient way to save for your future. As well as tax-relief on contributions and a tax-free lump sum from age 55 (57 from 2028), you also benefit from tax-free growth on your SIPP investments.  

SIPP dividends and tax

Dividends paid on investments held within a SIPP are free of UK tax. However, non-UK investments may be subject to dividend taxes applied by the country with tax jurisdiction over the investment and we do not offer a tax reclaim service for non-UK investments. 

There is no capital gains tax to pay and, as growth on your investments is tax-free within a SIPP, your money can grow faster than in an investment that is subject to tax. 

What are the 2024/2025 dividend tax rates?

Investments are subject to dividend tax unless they're held in tax wrappers like a SIPP or a Stocks and Shares ISA.

Everyone has a dividend allowance, which is currently £500. This used to be £1,000 last tax year. In addition, you do not pay tax on any dividend income that falls within your income tax personal allowance. 

Any dividends received in excess of the dividend allowance, plus any unused income tax personal allowance, will be taxed. The rate of tax is dependent on your income tax band. 

Using SIPPs to shelter your dividends

Sheltering investments that pay dividends in tax wrappers such as a SIPP or an ISA has become more important over the last few years.

The dividend allowance has been reduced steadily since it was introduced in April 2016 at £5,000. It was cut to £2,000 in 2018; £1,000 in 2023; and it has now been reduced to £500 for the 2024 tax year.

The dividend tax rate was also increased by 1.25 percentage points in April 2022, adding an extra £1.25 tax charge for every £100 of dividends received above the allowance.