Silly SIPP tax question

barnstar2077

Hi all,

I am from the UK and am going to start investing a lot more into my retirement. I am concerned about putting all my eggs in one basket, ie my company pension. I am thinking that a SIPP is the way to go as I have heard I can also get the tax back. Can you tell me how painful the process is please? I asked Payroll at my company and they said that they can't put the money in pre tax like they do with my company pension. If I manage a SIPP online will I have to ring the taxman and tell him I am doing it? Is it painful, how does it work please?

Sorry, I am just investigating how viable it is at the moment.

Cheers

Dazed_and_confused

If you are rest of the UK resident for tax purposes you only need to involve HMRC if there is additional tax relief due over and above the basic rate tax relief the SIPP provider will automatically add. Normally this is if you pay higher rate tax.

If you are Scottish resident for tax purposes you would need to contact HMRC to claim additional tax relief if you pay intermediate rate (or higher rate) tax.

It should be simple to sort out, the key thing is to know in advance how much you expect to earn in the current tax year i.e. P60 income figure, and make it clear to HMRC whether you are talking about net or gross figures.

barnstar2077

Okay, so it is automatic unless I am on a high tax rate? (Which I am not)

xylophone

Your company pension scheme operates on the "net pay" principle.

A personal pension operates on the "Relief at Source" principle.

https://www.nowpensions.com/help-centre/gateway/employee/general-information-gateway-help-centre/whats-the-difference-between-net-pay-and-relief-at-source

https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/tax-relief-on-pension-contributions-explained-a27f53z7qg3f

AlanP_2

What is your company pension DC or DB?

What are you trying to mitigate against?

Basic SIPP is very easy, choosing the investments inside it is the most difficult bit I would say.

barnstar2077

It is DC. I am putting in ten percent and so are the company. As I said in my original post I don't want to put all of my eggs in one basket. Am I wrong in thinking this?

I am not thinking of moving the pension I already have, I just didn't think it was a good idea to have all of your money in one place.

Paul_Herring

xylophone wrote: »

Your company pension scheme operates on the "net pay" principle.

A personal pension operates on the "Relief at Source" principle.

I'm intrigued as to what prompted the assumption about Net Pay.

As opposed to, say, Salary Sacrifice.

C_Mababejive

If you are due some higher rate tax relief, will HMRC automatically calculate it and deal with it via tax return? How do they pay it to you? tnx

Dazed_and_confused

Okay, so it is automatic unless I am on a high tax rate? (Which I am not)

For rest of the UK yes but not if you are Scottish resident for tax purposes and pay the intermediate tax rate (21%).

Paul_Herring

C_Mababejive wrote: »

If you are due some higher rate tax relief, will HMRC automatically calculate it and deal with it via tax return? How do they pay it to you? tnx

You need to fill out a self-assessment after tax-year end, and then they pay you directly:

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief#when-you-have-to-claim-tax-relief

If you don't tell them, you don't get it automatically.

AlanP_2

barnstar2077 wrote: »

It is DC. I am putting in ten percent and so are the company. As I said in my original post I don't want to put all of my eggs in one basket. Am I wrong in thinking this?

I am not thinking of moving the pension I already have, I just didn't think it was a good idea to have all of your money in one place.

Having more than one pension pot can be an advantage when retired and drawing money out - in case of IT problems for example. You might also get additional FSCS protection against fraud at pension provider but not sure that is a genuine risk if it is with a mainstrean provider.

Diversifying your underlying investments is more important in my view and whether you can do that in one pot depends on what investment options are offered.