SIPP 40% Tax Relief Question

Eye2013

Hi


Would be grateful if someone could clarify that my understanding and approach below is correct.


I want to invest into a SIPP, and it's most tax efficient if I invest an amount equivalent to all of my income in the 40% tax bracket.


1. This tax year my taxable income is about £47,000
Less 40% tax threshold (13/14) £41,451
Equals £5,549 to invest


2. Next year I'm looking at taking a company car, so
Main tax income as above £47,000
Plus company car gross taxable benefit say £5500
Equals total taxable income £52,500
Less 40% tax threshold (14/15) £41,865
Equals £10,635 to invest


I must say I'm quite looking forward to effectively not paying 40% income tax ever again !

CLAPTON

if you can afford (and wish) to forgo the money and have no better use for it, then putting it in a SIPP is tax effective

of course you don't actually invest 5,549 as such you invest
5,549 *80%

Eye2013

Thanks - yes I do have a surplus of cash luckily. I'm looking to retire on my SIPP/savings sometime after 55 before my other pension from age 60 kicks in. My other income then will be £0, and provided my income from the SIPP is below tax thresholds I'm looking at £invested x 0.4 effectively ! Seems a no brainer.

Eye2013

Sorry times 1.4

Eye2013

So do I invest £5549 x 0.8 = £4439 (as the SIPP provider makes back up the 20% tax benefit)
or £5549 ?

Linton

Eye2013 wrote: »

So do I invest £5549 x 0.8 = £4439 (as the SIPP provider makes back up the 20% tax benefit)
or £5549 ?

£4439 - 20% tax rebate goes to your SIPP and 20% to you

CLAPTON

Eye2013 wrote: »

So do I invest £5549 x 0.8 = £4439 (as the SIPP provider makes back up the 20% tax benefit)
or £5549 ?

you actually pay 4439 which is grossed up to 5549 by your pension provider

and you have to reclaim the other 20% from HMRC yourself