How do you get tax relief when paying into a Sipp?

bigfreddiel

As the title suggests, and I just slip into 40% tax so how does it work?

Cheers fj

Previn

bigfreddiel wrote: »

As the title suggests, and I just slip into 40% tax so how does it work?

Cheers fj

Assuming your taxable income takes you into 40% bracket...

You'll get the 20% directly from the SIPP provider, the remaining 20% you either have to claim back through tax return or you can ask HMRC to adjust your tax code to get it back in your pay.

Example
Pay in £8k to SIPP
SIPP provider adds £2k
HMRC owe you £2k

bigfreddiel

Previn wrote: »

Assuming your taxable income takes you into 40% bracket...

You'll get the 20% directly from the SIPP provider, the remaining 20% you either have to claim back through tax return or you can ask HMRC to adjust your tax code to get it back in your pay.

Example
Pay in £8k to SIPP
SIPP provider adds £2k
HMRC owe you £2k

My taxable income comes from a part time job,pension and savings interest. I do a tax return each year and it all gets added into one total sum and taxed accordingly. Now my state pension has just tipped me into the higher tax bracket, so this may be a good opportunity to pump some money into a SIPP. I've maxed out my s&s ISA, do that every year and it's up a good bit since BREXIT.

Cheers fj

Previn

Apologies, Confused with a similar post I was reading & had in my head you were already in HRT on pensions & wanted to get tax relief on all HRT.

Replies below are of course correct

zagfles

Previn wrote: »

I assumed you were just in employment & not receiving a pension.

Unfortunately Pension Income doesn't count as relevant income even though it is taxed as income. So unless your job earnings alone take you into the higher tax bracket you wont get that additional relief

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#IDAN30KF

The bolded bit is wrong. If the total earnings take the OP into higher rate tax, then higher rate relief will be given. Assuming the OP hasn't exceeded 100% of relevant earnings/£3600.

Eg if pensions & savings income is £40k and employment income is £10k, total £50k, the OP could contribute £7k gross (£5.6k net) to a SIPP and get higher rate relief on all of it.

xylophone

I have a relative (fully retired) aged over 65 but under 75 whose gross pension income takes him into 40% territory.

He has a SIPP into which he contributes net £2880.

HMRC have amended his tax code (extended basic rate band).

He thus pays only 20% on income in excess of his personal allowance.

zagfles

Previn wrote: »

As per link....

Earnings that attract tax relief
Section 189(2)-(7) Finance Act 2004

For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings.

I know a pension isn't relevant earnings! But employment income is, therefore the OP can contribute up to 100% of his employment income to his SIPP (or £3600 if greater).

His basic rate band will be extended by his gross contribution to the SIPP, getting him higher rate relief if his total earnings take him into the 40% tax band.

jem16

zagfles wrote: »

I know a pension isn't relevant earnings! But employment income is, therefore the OP can contribute up to 100% of his employment income to his SIPP (or £3600 if greater).

His basic rate band will be extended by his gross contribution to the SIPP, getting him higher rate relief if his total earnings take him into the 40% tax band.

I can confirm this is correct as I've been doing this for many years.

bigfreddiel

I'm none the wiser, so here are the details I should have posted
Pension £12k
Sp. £8k
Interest £3k
Earnings £23k

Total. £46k

So how much should I put into a SIPP to to take full advantage of the 40% tax band?

Cheers fj

jem16

bigfreddiel wrote: »

I'm none the wiser, so here are the details I should have posted
Pension £12k
Sp. £8k
Interest £3k
Earnings £23k

Total. £46k

So how much should I put into a SIPP to to take full advantage of the 40% tax band?

Cheers fj

£46k - £42k ( £32k higher rate band plus £11k personal allowance ) so £4k gross or £3200 net.

bigfreddiel

jem16 wrote: »

£46k - £42k ( £32k higher rate band plus £11k personal allowance ) so £4k gross or £3200 net.

Cheers jem16, so would this then drop me down to the 20% tax band?

And then do I get tax relief of 40% on my SIPP payment?

Cheers fj