Hargreaves Lansdown SIPP - Tax relief?

BarleyGB

All,

Ive just opened a Hargreaves Lansdown SIPP. Indications are that tax relief will be credited at the lower rate.

I am a higher rate tax payer, how do I arrange a credit at the higher rate, is this via HL or do I claim via my tax return?

Also, as a Director of my own limited company (also employee), is it better to transfer to the SIPP as a company contribution?

Linton

Unlike basic rate relief, your HR relief comes to your rather than your pension and needs to be claimed from HMRC.


It is better for your company to pay into your pension as it is a valid business expense and is not subject to NI. Also the amount is not constrained by the earnings limit that applies for personal contributions, but just by the £40K pension allowance.

Dazed_and_confused

how do I arrange a credit at the higher rate

You can't, any additional tax relief due will end up with you through your Self Assessment return.

You don't actually get an extra 20%, the gross contribution increases the amount of basic rate tax tax you can pay which can in turn result in you paying less higher rate tax so the exact amount of extra tax relief due isnt necessarily an additional 20%.

xylophone

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-relief-and-contributions

If you have set up your own scheme, the contributions that you pay into the scheme are usually treated as being paid net of basic rate income tax relief.

Like workplace personal pension schemes, your pension provider will claim back basic rate tax at 20% from HMRC adding this to your pot. Again, this means that if you pay a contribution of £80, your pension provider claims back a further £20 so a total gross contribution of £100 is paid into your pension pot.

If you're a higher rate taxpayer, you can claim further tax relief (at your higher rate less the basic rate already claimed on your behalf) from HMRC. This is usually claimed through your self-assessment tax return, although HMRC may also adjust your tax code to give you this additional relief. This means that if you pay income tax at 40%, you could claim an additional £20 tax relief, making your net contribution £60 in the above example.

xylophone

Re pension contribution from your limited company

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company?ast=8qm6l6


Your limited company can contribute pre-taxed company income to your pension. Because an employer contribution counts as an allowable business expense, your company receives tax relief against corporation tax, so the company could save up to 20% in corporation tax.

Your contributions must abide by the rules for allowable deductions. The rules state that the pension contributions should be ‘wholly and exclusively’ for the purposes of business. To figure out whether this is the case, HMRC looks for certain evidence, for example whether other employees are receiving comparable remuneration packages.

Another benefit is that employers don’t have to pay National Insurance on pension contributions. The National Insurance rate for 2018/19 is 13.8%, so by contributing directly into your pension rather than paying the equivalent in salary, you save up to 13.8%.

This means that in total, your company can save up to 33.8% by paying money directly into your pension rather than paying money in the form of a salary. Depending on your circumstances, this may or may not be more beneficial to you than paying personal pension contributions.

BarleyGB

Thank you all, great clarification.

Cee_Kaybe

Be careful, pension contributions count an expense from your limited company. This is great for tax efficiency but it reduces your company profit figure without adding to your personal salary.... not so good when you’re applying for a mortgage.

I do both. I make personal contributions up to the minimum wage (thus getting 20% tax relief) and top it up with company contributions.

dunstonh

Also, as a Director of my own limited company (also employee), is it better to transfer to the SIPP as a company contribution?

As a director of own company, you are almost certainly taking only £8424 pa. as a salary. (a small number of scenarios could see £11,850 possible). So, for personal contributions, you would be capped at £8424. Whereas the company contribution is really only limited by the contribution allowance/carry forward and your profit (as far as tax efficiency is concerned).

Do note the above from cee_kaybe if you plan to apply for a mortgage or remortgage and are pushing limits on earnings. Lenders are notorious for not understanding tax efficiency and choices when it comes to mortgages. They focus on trends on the net profit, salary, dividends and retained earnings. Pension contributions reduce your net profit. So, will reduce your lending limits Not a problem if you are not pushing limits but a problem if you are