Making additional payments into SIPP

gterr

Hello there,


I wish to make additional payments into a SIPP above and beyond those that will qualify for tax relief on the basis of my earnings. This is in order to fund the purchase of a commercial property within the SIPP. I have not used all of my annual allowance and have more than enough carry-forward allowance from previous years.


The SIPP I wish to load does not have the facility to note that these excess contributions should be made without tax relief, but the manager says that this is no problem: tax relief will be added, but the excess can 'simply' be paid back to HMRC in my next self-assessment tax return. Does anyone have experience of this?


An alternative would be for me to make the extra contributions into my other SIPP with Hargreaves Lansdown. HL can respond to my instructions not to claim tax relief. I could then make a partial transfer from my HL SIPP to the SIPP inside which I'll be buying the property.


Would anyone advise one option over the other?


Thanks for your time.

zagfles

gterr wrote: »

Hello there,


I wish to make additional payments into a SIPP above and beyond those that will qualify for tax relief on the basis of my earnings. This is in order to fund the purchase of a commercial property within the SIPP. I have not used all of my annual allowance and have more than enough carry-forward allowance from previous years.


The SIPP I wish to load does not have the facility to note that these excess contributions should be made without tax relief, but the manager says that this is no problem: tax relief will be added, but the excess can 'simply' be paid back to HMRC in my next self-assessment tax return. Does anyone have experience of this?

Ask them where exactly you're supposed to declare it on the tax return. I can't see anywhere. In the reliefs section for pension contributions it looks like you can only declare the amount you're entitled to relief on.

I thought the process for this was you inform the pension provider and they either didn't claim the tax relief, or they paid the tax relief back.

An alternative would be for me to make the extra contributions into my other SIPP with Hargreaves Lansdown. HL can respond to my instructions not to claim tax relief. I could then make a partial transfer from my HL SIPP to the SIPP inside which I'll be buying the property.


Would anyone advise one option over the other?


Thanks for your time.

I'd go for the latter, unless the pension provider of the former can tell me, in writing, exactly how it's supposed to be declared on the tax return.

But paying into a pension without tax relief seems a crazy thing to be doing...it creates a tax liability without tax relief! Unless you can be sure of drawing it out within your personal allowance, or using it as an IHT dodge...

NordicNoir

zagfles wrote: »

Ask them where exactly you're supposed to declare it on the tax return. I can't see anywhere. In the reliefs section for pension contributions it looks like you can only declare the amount you're entitled to relief on.

The details are included in the 'Additional Information' SA101 section:

https://www.gov.uk/government/publications/self-assessment-additional-information-sa101

gterr

zagfles wrote: »

I'd go for the latter, unless the pension provider of the former can tell me, in writing, exactly how it's supposed to be declared on the tax return.

But paying into a pension without tax relief seems a crazy thing to be doing...it creates a tax liability without tax relief! Unless you can be sure of drawing it out within your personal allowance, or using it as an IHT dodge...

Thanks, zagfles.
Yes, I understand that making additional pension contributions without tax relief sounds odd, but it's a one-off to do with the commercial property purchase. There are good reasons - partly charitable, partly to do with this particular property, its tenant, the likely capital gain and my tax status in retirement - why I believe purchasing within the SIPP is beneficial on this occasion. (Nothing to do with IHT dodging: I should be so lucky!)


I think I will go with the latter, as you suggest. Thanks.

EdSwippet

MichelleUK wrote: »

The details are included in the 'Additional Information' SA101 section

This covers pension contributions in excess of the annual allowance, but doesn't seem to handle contributions in excess of salary. These two situations are similar, but not quite the same.

zagfles

MichelleUK wrote: »

The details are included in the 'Additional Information' SA101 section:

https://www.gov.uk/government/publications/self-assessment-additional-information-sa101

I can't see anything relevant there. Only stuff about exceeding the annual allowance, which isn't relevant here.

NordicNoir

EdSwippet wrote: »

This covers pension contributions in excess of the annual allowance, but doesn't seem to handle contributions in excess of salary. These two situations are similar, but not quite the same.

But do they not result in the same situation - contributions have received tax relief that they should not have received and the relief must be repaid?

I understood that you claimed relief for the total contributions (including the excess) on the SA100 and then showed the excess contribution on the SA101 under the excess annual allowance part. There is an example here:
http://www.pruadviser.co.uk/content/knowledge/technical-centre/annual_allowance/#7

Happy to be corrected though, I am still pretty new to the intricacies of pensions!

zagfles

MichelleUK wrote: »

But do they not result in the same situation - contributions have received tax relief that they should not have received and the relief must be repaid?

I understood that you claimed relief for the total contributions (including the excess) on the SA100 and then showed the excess contribution on the SA101 under the excess annual allowance part. There is an example here:
http://www.pruadviser.co.uk/content/knowledge/technical-centre/annual_allowance/#7

Happy to be corrected though, I am still pretty new to the intricacies of pensions!

No. That's talking about the annual allowance. The OP is not exceeding the annual allowance. He's exceeding the earned income limit.

EdSwippet

MichelleUK wrote: »

But do they not result in the same situation - contributions have received tax relief that they should not have received and the relief must be repaid?

That would be a rational way to look at it. But tax laws -- and particularly pension tax laws -- aren't really rational. Neither is HMRC's implementation of them.

If you exceed the annual allowance, you personally have to pay a tax charge. If the charge is over £2k you can use 'scheme pays' to have the scheme pay it for you. That way you only lose out mildly, versus a genuine double-tax case if you pay it yourself (because you'll also pay tax on later pension withdrawals, even though a part of the pension pot is made up of post-tax money). You can never get a refund of payments made in excess of the annual allowance.

If you exceed your 'pensionable' salary, the pension provider repays the tax over-reclaim to HMRC, and then refunds your over-contribution. This is one of the very few cases where you can get money back from a pension before age 55 and without penalty.

Why don't HMRC treat these cases symmetrically? Who knows.

It seems particularly inoffensive to me to allow someone who contributes over the annual allowance a refund of over-contributions. Especially with the insane annual allowance 'taper' rules now in full swing. But not only is a refund not allowed, but 'scheme pays' is also not available for tapered allowances, making breaching one a highly punitive process (it leads to genuine double-tax on the over-contributed amount).

zagfles

EdSwippet wrote: »

That would be a rational way to look at it. But tax laws -- and particularly pension tax laws -- aren't really rational. Neither is HMRC's implementation of them.

If you exceed the annual allowance, you personally have to pay a tax charge. If the charge is over £2k you can use 'scheme pays' to have the scheme pay it for you. That way you only lose out mildly, versus a genuine double-tax case if you pay it yourself (because you'll also pay tax on later pension withdrawals, even though a part of the pension pot is made up of post-tax money). You can never get a refund of payments made in excess of the annual allowance.

If you exceed your 'pensionable' salary, the pension provider repays the tax over-reclaim to HMRC, and then refunds your over-contribution.

This is an option, but you can leave it in, minus the tax relief.

This is one of the very few cases where you can get money back from a pension before age 55 and without penalty.

Why don't HMRC treat these cases symmetrically? Who knows.

It wouldn't work. AIUI the AA tax charge is charged at your marginal tax rate on the amount you exceed the AA by.

But if, say, you have an earned income of £5,000 and decide to contribute £10,000 to your pension, your marginal rate would be zero if another £5,000 was added to your taxable income. So it wouldn't repay the tax relief.

EdSwippet

zagfles wrote: »

But if, say, you have an earned income of £5,000 and decide to contribute £10,000 to your pension, your marginal rate would be zero if another £5,000 was added to your taxable income. So it wouldn't repay the tax relief.

Right, thanks. Treating both the way that excess over annual allowance won't work.

But treating both the way that excess over salary would, I think. A simple refund of excess contributions. No complicated tax charges. No punitive double-tax outcomes. No foul interaction with the insane taper rules. Pure unwinding. That was the sort of symmetry I had in mind. And it's not clear, at least to me, why HMRC sees this as undesirable. Shrug.