SIPP - Higher Rate Tax Claimback

musclebeach

Hi,

I will be over the basic rate tax band by a £2000, I currently pay into a SIPP of £150 per month.

I automatically get back 25%, but how much of that £150 would be eligible for the higher rate return?

CLAPTON

so your income is 44,475 and you pay into a pension with a gross amount of 2250 per annum

so you will be able to reclaim 20% of 2000 back i.e. £400

musclebeach

wow, thank you.

Just to clarify. How did you get the calculation of me be eligible of claiming back 20% from 2000 of the 2250?

thenudeone

In the current tax year the higher rate band starts at 7475+35000=42475 (ignoring any other allowances / benefits)

So if you earn 44475, only £2000 of your income is taxed at 40%.

If you pay £1800 by cheque to your pension, they will add back standard rate tax to create a GROSS amount of 2250.

You can claim back the additional 20% tax but only on the amount of your income that was originally taxed at 40%, i.e. 20% of £2000 = £400

The rest of your contribution doesn't attract any extra because it was taxed at 20% and the pension scheme has added the same amount back.

So the top £2000 of income that ends up in your pension has only cost you £1200. (2000 x [100% - 40%])
You have paid 1600 by cheque, and you'll get a refund of 400; net cost £1200

musclebeach

Thanks so much, that all makes clear sense to me now :j

thenudeone wrote: »

In the current tax year the higher rate band starts at 7475+35000=42475 (ignoring any other allowances / benefits)

So if you earn 44475, only £2000 of your income is taxed at 40%.

If you pay £1800 by cheque to your pension, they will add back standard rate tax to create a GROSS amount of 2250.

You can claim back the additional 20% tax but only on the amount of your income that was originally taxed at 40%, i.e. 20% of £2000 = £400

The rest of your contribution doesn't attract any extra because it was taxed at 20% and the pension scheme has added the same amount back.

So the top £2000 of income that ends up in your pension has only cost you £1200. (2000 x [100% - 40%])
You have paid 1600 by cheque, and you'll get a refund of 400; net cost £1200