Does HMRC payment go into cash part of SIPP?

Audaxer

Am I right in thinking that the 20% tax relief added to your SIPP will go into the cash bit of the SIPP to invest as you wish whether or not you have already invested your initial contribution?

Sarastro

I would think it would be distributed proportionately across the investments you've already made...?

dunstonh

It varies depending on the provider. Some put it in the cash account. Some invest on the same basis of the funds selected

Audaxer

dunstonh wrote: »

It varies depending on the provider. Some put it in the cash account. Some invest on the same basis of the funds selected

It's my wife's SIPP with AJ Bell. We have lodged a lump sum payment which we intend to invest in a multi asset fund. I assumed that in evelen weeks or so when HMRC payment is received they will advise us and we can invest that. I cant find any clarfication about that on their site, but I see for an HL SIPP unless you give them specific instructions they will automatically invest the HMRC payment in whatever fund(s) you have already invested your original contribution.

dunroving

I'd call your provider and ask the question. I'm with Fidelity and for a while could not figure out the seemingly random allocation they made whenever my HMRC cash top-ups came in.

My wish (and I'd assume the default for most people) would be as you said, to put into the cash fund so you can decide what to do with it. The other logical default (logical to me anyway!) would be to put it in whatever fund(s) the originating money was invested in.

I eventually figured Fidelity was investing the HMRC tax top-up into whatever was the most recent fund I had invested in. When I called and asked what was the logic behind this, they garbled something about an assumption that your most recent investment reflected your current investment strategy. I then asked if I could put it on record that I *always* want my HMRC top-up to go into my cash fund. They said Yes and from then on, that's what happened .... until recently.

I invested in a new (to me) fund last year and lo and behold my next HMRC top-up was invested in that fund! Fidelity's explanation was that they assumed my recent new fund investment reflected "a change in your investment strategy". Go figure. So now I am back to the default of "top-ups go into cash", but on the understanding that if I invest in any other new fund, I need to call Fidelity to tell them this does not constitute a change in my investment strategy.

It all seems a bit odd to me.

Audaxer

Thanks dunroving, I'll check with them. I looked at the HL site and it said something similar to your experience - that they would invest it based on your last funds purchase. You'd think it would be simpler just to put them to cash.

stoozie1

I'm with Fidelity and have the opposite problem. I've clicked for everything to go into VLS 100 but the tax relief always stays in cash til i move it manually.

Asghar

With a Hargreaves Lansdown SIPP, it's very straight forward and logical.

When you top up the SIPP with cash you are given the option straight away to invest the money into a fund, which if you do, then when the tax relief arrives, HL will invest it into the same fund. This happens even if you had sold the fund in the meantime or switched to a different one.

If after topping up with cash, you do not choose to invest it into a fund straight away, the money goes into the cash fund and so does the tax relief when it arrives. Even if you invest the money into a fund later, the tax relief is still placed into the cash fund, it's the original instruction that the tax relief follows.

dunroving wrote: »

I eventually figured Fidelity was investing the HMRC tax top-up into whatever was the most recent fund I had invested in. When I called and asked what was the logic behind this, they garbled something about an assumption that your most recent investment reflected your current investment strategy.

That's a strange way of doing it.
If I wanted to invest £1000 gross into a UK Index Fund, then after investing £800 net, I have to wait for the tax relief to arrive and go into that fund before I can choose to invest into another fund, like a Global one. If I was to invest into another fund before the first tax relief arrived then they would both be invested into the second fund. That's not how it should be.

ianthy

Audaxer wrote: »

It's my wife's SIPP with AJ Bell. We have lodged a lump sum payment which we intend to invest in a multi asset fund. I assumed that in evelen weeks or so when HMRC payment is received they will advise us and we can invest that. I cant find any clarfication about that on their site, but I see for an HL SIPP unless you give them specific instructions they will automatically invest the HMRC payment in whatever fund(s) you have already invested your original contribution.

My OH also has an AJ Bell SIPP and the tax credit appears in the cash account. He then decides how to invest. Just something to watch for - he didn't get a notification that the sum had arrived. OH just logged in to find the cash sitting there. I think it credits after 26th of each month.

TheShape

To add my experience re HL re regular payments.

I have a regular payment set-up with an instruction to invest a portion into a fund and a smaller portion to remain in cash (to cover fees). When the tax relief is applied it is applied in proportion to that instruction, so part invested in a fund and part to cash.

NoMore

As per Ianthy's reply, AJ Bell credit tax relief as cash but no notification that it has happened