Is there a best time?

billpaul812

I am intending to start a sipp with a lump sum that will also involve me having to claim the higher rate part of my tax relief through HMRC. Trouble I don't think my current income (LGPS pension) will be high enough to get all the relief this year. How will that work then? Would it be adjusted so that I get some this financial year and some next year or do I get a cash refund or could I miss out?

Linton

I don’t understand what you mean. If you don’t have enough income why do you get higher rate tax relief? Please could you provide more detail.

AnotherJoe

Are you saying your income is only from a pension ? In that case you can’t pay anything in other than the minimum, £2880.

billpaul812

Sorry it was a bit sparse, its been detailed in another thread and didn't want to bore you with it all again.

I'm intending to use some of a redundancy lump sum from the LGPS to start a sipp to boost income in a few years time. I was a higher rate tax payer (just). I understand that the sipp provider will add 20% and I need to claim the other 20% from HMRC. The amount I intend to invest will be higher than the £40K allowance, but well within the limits allowing for allowance carry forward.

Does this help?

Linton

Not enough information yet.....
1) You were working on an annual salary just into the higher rate tax band until some time this tax year?
2) You then took an LGPS tax free lump sum and started your LGPS pension?
3) Did you in addition get a redundancy lump sum from your employer? You talk about a "redundancy lump sum from LGPS" which doesnt make sense to me. A pension lump sum is entirely tax free, a redundancy lump sum is taxable above £30K.
4) Will your total non tax-free income this tax year be in the higher rate band?
5) You want to put some money into your pension. Is this amount covered by your earned income+taxed redundancy payment beyond £30K? Pension income of any kind doesnt count as "earned income".

billpaul812

Ok, let me get it right!

1) Yes. Made redundant at the beginning of Nov. LGPS pension started and LGPS lump sum taken. Also, which I found odd, I was paid 12 weeks PILON also from the beginning of Nov.
2) Yes.
3) Yes as 1) above. Sorry about my mistake in the previous post.
4) Yes if I've understood correctly.
5) I understand earned income. The total of my salary plus the taxed element of my redundancy is greater than what I want to put into a sipp. (The amount I want to invest in a sipp is £50K).

I think that covers it. I have had help with a lot of this in another thread, just trying to tie up a few loose ends (to my mind at least!), with whether what I am doing to legal and how the HMRC element of my tax refund will work.

Thanks for sticking with me.





The redundancy lump sum was £30K tax free plus £37K all taxed at 40%

Asghar

billpaul812 wrote: »

The redundancy lump sum was £30K tax free plus £37K all taxed at 40%

How can you be taxed at 40% on all of the £67K, something is wrong there.
Only earnings above £45K are taxed at 40%, which would have been on £22K of it.

Why did you start another thread, it seems that you are confusing yourself and others along with it.

Linton

OK, thanks. Tax can be refunded through PAYE which would result in a lower tax or even negative tax on your LGPS pension. That would depend on HMRC knowing about your pension payment and sending the appropriate tax code to LGPS. An alternative would be a cheque after the end of the tax year.

So when you make your pension payment I suggest you phone HMRC and let them know. You can discuss the payment of tax refund at that time.

Linton

Asghar wrote: »

How can you be taxed at 40% on all of the £67K, something is wrong there.
Only earnings above £45K are taxed at 40%, which would have been on £22K of it.

Why did you start another thread, it seems that you are confusing yourself and others along with it.

I think the OP is saying he was charged 40% tax on the £37K beyond the tax free £30K. As I understand it PAYE works by treating each month as 1/12 of the year with 1/12 the allowances. So most or all of the £37K would be taxed at higher rate.

billpaul812

Correct, I had meant to delete that last line, didn't notice it had slipped to the bottom of the post. I think the word "all" was misleading, but I had meant to delete it.

With regard to the other thread it was a while ago and the key subject was different. This is just trying to tie up a few things that I needed clarifying.