SIPP and income tax

pinkllama

The the first time this year I may pay higher rate income tax.
I stopped paying into my SIPP a while ago as I want to retire before 55, so just pay my savings into an ISA.
I understand I'm missing out on the 20% rebate but I'll have to pay all this back anyway as I have rental property that'll alway keep me above 0% tax.
My question is, if for example I realise before the end of this tax year I'll earn £50k, will adding £5k to my SIPP before April 5th 2018 mean that I'll get a 40% rebate on all for earnings that I've paid 40% tax on?

Dazed_and_confused

I have no idea what you mean by,

I understand I'm missing out on the 20% rebate but I'll have to pay all this back anyway as I have rental property that'll alway keep me above 0% tax

If you are eligible the basic rate tax relief credited at source is always kept in the sipp fund (most can pay at least £2880 net and receive £720 tax relief each year).

The answer to your question is no, you cannot get 40% refund. The basic rate relief is credited at source so you would only get the additional 20% rebate from HMRC. Overall you can get 40% but it's split 20% added to the sipp and 20% to you (providing you have paid sufficient higher rate tax).

Eco_Miser

Dazed_and_confused wrote: »

I have no idea what you mean by,

I understand I'm missing out on the 20% rebate but I'll have to pay all this back anyway as I have rental property that'll alway keep me above 0% tax

They mean that although they would get a 20% rebate on the payments into the SIPP, they would then pay at least 20% tax on the pension they receive, since their rental income will take all their personal allowance. This would give no overall gain - except for the 25% that could be taken as a tax-free lump sum.

And the answer to the question is that yes, they will get 40% of the relevant payment back, split as 20% into the SIPP and 20% claimed directly from HMRC.

talexuser

Contributions into the SIPP can affect your "adjusted net income", in effect adding to your personal allowance+basic rate band. So if you only "may" go into higher rate, depending on the numbers, it could avoid the higher rate band?

pinkllama

Thanks for all the answers.