Maxing out my SIPP this tax year

chucknorris

I can contribute another £6,500 (net) this tax year, which is £8,125 gross. If I do it in the next week or so, the additional amount claimed (the 20% pension tax relief) will not actually appear in my SIPP until the next tax year. But I don't know which tax year it would actually be counted in by the inland revenue? So my query is, should I invest £6.5k or £8.125k to max out my SIPP for this tax year?

If anyone knows I would appreciate you saying so, thanks in advance.

jem16

chucknorris wrote: »

So my query is, should I invest £6.5k or £8.125k to max out my SIPP for this tax year?

It should be £8125. What matters is when the contribution was made.

chucknorris

jem16 wrote: »

It should be £8125. What matters is when the contribution was made.

Thanks jem, so the extra 20% (£2,031.25) pension tax relief (from a net £8,125 contribution this tax year) would count against next year's annual allowance/relevant income total, if it happens to be claimed in that tax year?

deaglecat

I am interested in the answer to this too.

My understanding is that you contribute the net amount. SIPP provider adds 20% basic rate tax and then you claim the tax back on your 2015/6 tax return. The additional refund for HRT is not in of itself taxable...

RickyB2000

I would have thought it is the net amount as a lower rate tax payer. It must surely be the date the contribution was made, not when the tax relief was given. Otherwise you would pay in £8k and get another 2k in tax back. Or are you saying that the 2k extra tax will count towards next years 40k as it was given after the tax year?

Higher rate tax payer is a bit different.

chucknorris

RickyB2000 wrote: »

I would have thought it is the net amount as a lower rate tax payer. It must surely be the date the contribution was made, not when the tax relief was given. Otherwise you would pay in £8k and get another 2k in tax back. Or are you saying that the 2k extra tax will count towards next years 40k as it was given after the tax year?

Higher rate tax payer is a bit different.

Actually I am a higher rate tax payer, prehaps I was viewing it too simplistically. I was thinking that the additional claim for the additional pension tax relief would follow the logic of the initial tax relief.

RickyB2000

OK, makes sense now, got confused when you said the taxman will add to your SIPP. As a higher rate tax payer, you get 20% paid into SIPP, the same logic as if you were basic. The tax you claim back as higher rate goes into your bank account. So you need to pay the extra 20-25% you will claim back in upfront.

Kendall80

I've spare capacity too but im waiting on the possibility of the 33% tax claim.

bowlhead99

chucknorris wrote: »

jem16 wrote: »

It should be £8125. What matters is when the contribution was made.

Thanks jem, so the extra 20% (£2,031.25) pension tax relief (from a net £8,125 contribution this tax year) would count against next year's annual allowance/relevant income total, if it happens to be claimed in that tax year?

I'm not sure if you're quite following, though maybe I'm misunderstanding how you've interpreted it. If you only have £8k of gross pension capacity left, then you can only put in 6.5k, because the provider will automatically go and get the £2k gross up for you, and whether he does that immediately or next month, "what matters is when your contribution is made" and not when someone gets round to filling out the paperwork to get the relief.

Your £6k net payment made in March means the £2k collected for you by the provider is deemed to be in your pension in this tax year no matter when he actually gets it for you. And the £2k you're going to get off HMRC, after you file your tax return, is off your current year tax bill not next.

Obviously the £2k *you* claim back off HMRC is probably only available for you to reinvest it (or spend it) next year, and the £2k your provider claims might only be available for you to deploy into assets in your SIPP next year. But both this things are tied to your contribution date.

So basically, £6.5k contributed today uses up £8k of allowance today which is what you want to do to fully use it up. If you put in £8k today, your provider will claim £2k, tied to today's date, and then you'll have made £10k gross contribution in the current tax year, which is more than your limit, if I read the first post correctly.

chucknorris

bowlhead99 wrote: »

I'm not sure if you're quite following, though maybe I'm misunderstanding how you've interpreted it. If you only have £8k of gross pension capacity left, then you can only put in 6.5k, because the provider will automatically go and get the £2k gross up for you, and whether he does that immediately or next month, "what matters is when your contribution is made" and not when someone gets round to filling out the paperwork to get the relief.

Your £6k net payment made in March means the £2k collected for you by the provider is deemed to be in your pension in this tax year no matter when he actually gets it for you. And the £2k you're going to get off HMRC, after you file your tax return, is off your current year tax bill not next.

Obviously the £2k *you* claim back off HMRC is probably only available for you to reinvest it (or spend it) next year, and the £2k your provider claims might only be available for you to deploy into assets in your SIPP next year. But both this things are tied to your contribution date.

So basically, £6.5k contributed today uses up £8k of allowance today which is what you want to do to fully use it up. If you put in £8k today, your provider will claim £2k, tied to today's date, and then you'll have made £10k gross contribution in the current tax year, which is more than your limit, if I read the first post correctly.

Thanks, don't worry I know how the system works, apart from the bit that you just told me. Which was that, what matters is in which tax year I make the original contribution, I was concerned that the rules might define that the additional amount claimed by the provider might fall into the next tax year. Which means that I can only pay in £6.5k net this tax year, thanks. I couldn't find that on the net, although I must admit I gave up quite quickly and resorted to asking on here.

westy22

Some SIPP and PP providers 'pre-fund' the tax relief by adding it into your account the same day that you make the contribution and they then wait for HMRC to compensate them. These are mostly IFA-led providers rather than DIY providers, however.

Bowlhead is spot-on - the tax relief is deemed to be received on the day the contribution is made even if HMRC might take months to actually pay it out.

Interestingly, there is no guaranteed timescale for HMRC to pay the tax relief to a provider other than within 12 months and I have heard of at least one DIY provider that was only receiving tax relief annually due to some procedural difficulties between HMRC and the platform.