SIPP. Been given bad advice? Annual allowance charge

lifecanbetough4

1. Opened first Pension/Sipp on 24/3/2015. Put in £40k gross.
Closed PIP.
2. Opened new PIP and put in £30k gross on 26/3/2015.

3. Claimed tax relief on £70k in tax return.


My earnings were around £130k to 31/3/2015 and same for 31/3/2016.

I just spoke to HMRC and they said I might have to pay an annual allowance charge as I claimed tax relief on £70k and the annual allowance was only £40k. I am sure at the time..my SIPP provider said I could put in the £30k by opening a new SIPP and use the 2015/2016 allowance early. I didn't expect my earnings to 2016 to be the same so wanted to claim higher tax relief against 2015 earnings.

I can't make any phone calls as everywhere is closed and there is no way I will be able to sleep tonight

slowpoke_rodriguez

lifecanbetough4 wrote: »

2. Opened new PIP and put in £30k gross on 26/3/2016.

How have you managed that?

dunstonh

SIPP. Been given bad advice?

In answer to that question, no. SIPP providers do not provide advice.

I just spoke to HMRC and they said I might have to pay an annual allowance charge as I claimed tax relief on £70k and the annual allowance was only £40k.

They are clearly distinct periods. So, you should have claimed £40k for 2014/15 and £30k for 2015/16.

For plans set up after 6 April 2011 the first pension input period has a default end date of the following 5 April. They would then run in line with the tax year. So, your 24/03/2015 date saw it's pension input period end on 05/04/2015. 06/04/2015 was the start of the next input period.

I am sure at the time..my SIPP provider said I could put in the £30k by opening a new SIPP and use the 2015/2016 allowance early.

You could put the £30k into the cash account of the platform ready to move onto the SIPP at the desired date. Some platforms allow you to automate all of that so you can get it all in place and they will collect it from the cash account on a given date.

Looking at your earnings, you are probably better off having the contributions in each tax year as you bring your earnings below £100k. That would save you more than splitting it as per your intention.

Is this a hypothetical example (as you are using a date in the future, not current) or are all your years one out (i.e. you mean 2013/14 and 2014/15)?

mania112

I don't see where you've done anything wrong. I think HMRC are wrong to say you've over-contributed.

EDIT: Dunstonh seems to disagree with me, so I must be wrong. But I thought you could re-align PIPs to whenever you wanted, and the annual allowance is matched to PIPs not Tax-years (it's just the case that by default they're the same date)

mania112

lifecanbetough4 wrote: »

2. Opened new PIP and put in £30k gross on 26/3/2015.

Do you mean SIPP here, not PIP?

dunstonh

I am not confident because of the dates quoted. They could be the wrong way around as the OP cannot have made a contribution on 26th March 2016 as that is in two weeks time. Is that 2014 or is the other one 2014 and this one 2015?

PIPs can be changed but for new plans set up after 2011, they default to tax year. The OP indicates this is a new pension and doesnt mention adjusting the PIP default. Hence why I am going by tax year default. They cannot be changed retrospectively.

lifecanbetough4

dunstonh thank you for your reply. I am literally shaking with a mix of regret/lack of knowledge/uncertainty/fear.

This isn't an example. This is what happened.

£40k in 24/3/2015. 2014/2015 allowance?
£30k in 26/3/2015. 2015/2016 allowance?
Claimed tax relief on the £70k in tax return.

mania112

Royal_London wrote:

Adjusting the pension input period to pay more than the annual allowance

Somebody who earns £100,000 would like to pay a member contribution of £80,000 into a new money purchase pension scheme before the end of the 2015/16 tax year.

They pay a gross amount of £40,000 on the 1 November 2015.

As this is the first contribution to a new plan the input period would normally run from 1 November 2015, the date of the first contribution, to 5 April 2016. The member can request a nomination date earlier than this so they nominate 30 November 2015.

The end of the first input period was in the 2015/16 tax year therefore the annual allowance was £40,000. Assuming that no other pension contributions were paid by them or on their behalf in the same input period or to pension input periods ending in 2015/16 for other pension plans, then there will be no annual allowance charge.

On 1 December 2015 they pay an additional gross amount of £40,000.

The second contribution was paid in a pension input period that will end on 30 November 2016. As this is in the 2016/17 tax year, the annual allowance will be £40,000. Again as long as no other pension contributions are paid by them or on their behalf in the same pension input period or pension input periods ending in 2016/17 for other pension plans, there will be no annual allowance charge.

Tax relief is based on tax years. Therefore in this example a gross amount of £80,000 was paid in the 2015/16 tax year. For the member to be able to claim tax relief on the entire pension contribution of £80,000 they must have earnings to justify this. If the contribution had been paid by the employer rather than the member then it would be up to the employer's local inspector of taxes whether 100% corporation tax relief is granted on the contribution.)

Give this a read-through and match the example to your situation.

lifecanbetough4

mania112 wrote: »

Do you mean SIPP here, not PIP?

No. I mean Pension Input Period

I only have 1 SIPP/pension

mania112

lifecanbetough4 wrote: »

I am literally shaking with a mix of regret/lack of knowledge/uncertainty/fear.

First thing is not to worry, everything can be fixed one way or another.

mania112

How do you change PIP's - i'm assuming it's only a theoretical change and you tell HMRC that's what you've done after the fact? Or do the provider and HMRC need to be notified beforehand?