Can you change your tax band by opening a SIPP?

C_Mababejive

Example,,

An individual already pays into an employee pension scheme via his pay with his employer.

His total income for a tax year is such that he is some way into the higher rate tax band (40%).

If he opens and pays into a SIPP ,is it possible that by doing so, his overall tax position could be moved to the basic rate tier?

If so,how so and how does it work?

Thanks

BoGoF

Yes, whatever the amount that falls into the 40% tax bracket - pay 80% of this amount into a SIPP.

C_Mababejive

BoGoF wrote: »

Yes, whatever the amount that falls into the 40% tax bracket - pay 80% of this amount into a SIPP.

Thanks,,so you are not actually changing your tax bracket as assessed by HMRC,you are reducing your effective rate of tax????

Tom99

Remember to include savings interest and dividends together with taxable salary to work out how much you need in the SIPP as it may be more than you think.

MDMD

Also (depending on the type of scheme at the employment) it may be possible to pay more into the employment scheme. You may get lower fees than a SIPP.

libster08

sorry if this is a stupid question, but why do you only pay 80% of the amount that falls into the higher rate band, why not 100%

thanks

NoMore

Because the other 20% is claimed back by your Sipp as basic tax relief.


You then have to claim the higher tax relief yourself, on the gross amount you contributed to the SIPP. I.e your net deposit + the 20% tax relief

libster08

oh right I see

thanks for reply

kinger101

You might also be able to increase your pension contributions though your employer's scheme. If it's salary sacrifice, then you'll also save NI on the payments, and if you're really lucky, the employer may pass on their saving too.

The downside is, an employer's scheme generally has less choice when it comes to funds.