SIPP tax relief question

ignoramus_

Hello,

This is my first post here, although I have gladly benefited for a while from all the information on this site and the forums!

My question is as follows:

I'm 29 and started a SIPP in June of this year. I kicked it off with a lump sum of £6,000. After about 8 weeks, the SIPP provider added £1,500 to my pot due to tax relief.

I understand that tax relief shouldn't be paid on more than what you earn in the tax year, or £3,600, whichever is greater. I have now started a full-time course in education, so my earnings for the tax year 2010/2011 will certainly not exceed £3,600 (something which I didn't expect when I started the SIPP).

I would like the £1,500 to stay invested in the SIPP. I guess that all I was entitled to was £900 of tax relief. What are my obligations at this point? Do I wait until the end of the tax year, at which point I will need to pay £600 to the Inland Revenue? Or should I be doing something now about the situation?

Info greatly appreciated,

Andrew

IgOt4sKiNs

You actually have the option of requesting anything over your maximum back from the SIPP Provider so you could request £3120 back. This would leave £2880 + tax relief to take you to £3600. You could then open a new input period and pay in another £2880 + tax relief and keep the rest or just keep everything after the initial £3600. Surprised it took 8 weeks for them to add tax relief, they should have added it from day 1.

Anyway to answer your original question the £1500 is irrelevant as you were only entitled to pay £2880 + tax relief in this tax year.

hugheskevi

Surprised it took 8 weeks for them to add tax relief, they should have added it from day 1.

I believe several SIPPS only credit tax relief when they receive it rather than from Day 1, mine takes a couple of months and when I researched it, delays of a couple of months were normal for several providers.

SippTechie

Your options are as follows:

1. Ask for the net part of the contribution that exceeded your eligibility for tax relief to be refunded. You are unlikely to be able to do this until after the end of the current tax year, as you don't currently have any evidence that your earnings in the current tax year are definitely going to be below £3,600 i.e. your circumstances might change again meaning you do earn more than £6,000. If you request the net element back then the SIPP provider must pay it, and they must also return the tax element to HMRC.

2. Don't ask for the net part of the contribution that exceeded your eligibility for tax relief to be refunded. You don't have to have it back, although the SIPP provider needs to know that there has been an over contribution so that they can return the tax element back to HMRC. HMRC may contact them, even if you don't.

The reference to the input period above is a bit off a red herring. Pension input periods are used to measure whether you exceed something called the annual allowance, and you can change the dates in which pension input periods end to allow two very large contributions in the same tax year (although the current anti-forestalling rules reduce the circumstances when there is any benefit in doing this). Pension input periods are not something that can be used to get around the upper limit on contribution tax relief that is based on earnings in a given tax year. Anyway, as mentioned above, this is a bit of a red herring as you're way off the annual allowance limits.

ignoramus_

Many thanks for all of your replies. This information is excellent and should be enough to help me to decide how to proceed.

Andrew