SIPP Tax Relief

Aristarcus

Hi

I have a stupid question to which I'm sure the answer is 'you want to have your cake and eat it too?' but want to ask anyway just in case..

In order to claim the additional 20% tax relief available to a higher rate tax payer to be applied to a voluntary contribution to a SIPP, would I be right in assuming:

You had to have paid tax at the higher rate during the SAME financial year as the pension contribution? So for instance I paid higher rate tax in 18/19, I can't claim higher tax relief on a contribution made in 19/20?

I have seen footnotes on some sites to the effect that you must have paid SUFFICIENT tax at the higher rate in order to claim the additional tax relief.. can anyone advise how much is 'sufficient'?

leading on to my conundrum...

This year I would be a higher rate tax payer, however am contributing 40% of my salary via salary sacrific to my SIPP - around £1,800 (I know thats a large amount but am in a position at the moment that I can survive on the resultant take home) to build up my pension and increase personal savings allowance to basic tax payer rate.
So if I continue through the year I will -and I can't remember the correct term - be notionally a basic rate tax payer

HOWEVER... I am in a position to be able to contribute the full yearly allowance of £40k to my SIPP. Assuming I can only claim tax relief the same financial year as the contribution was made, would you consider it make more sense to reduce my salary sacrifice sufficiently to get me back into the higher rate tax, even if only just, to gain the additional £8k tax relief?

Would there be any other benefits to being a basic rate taxpayer that you can think of which would offset losing this additional tax relief?

Thank you very much for your patience and tolerance!

Tom99

My understanding is that you can only claim the additional 20% tax relief on the amount of salary you have paid 40% tax on.

I would have thought that the contributing via salary sacrifice would be the same or maybe even cheaper than just topping up the SIPP. Do you save the NI you would otherwise have paid on the salary sacrifice contributions.


Do you mean £1,800 per month?

Albermarle

By contributing via salary sacrifice , you are automatically getting the full tax relief as all contributions are untaxed . If the amount you contribute already takes you below the HRT threshold , then you have already maximised the full HRT relief you are entitled to .
There is no point reducing the salary sacrifice so you still pay some HRT and then adding more to the pension just to get it back again .

Paul_Herring

Do not reduce your salary sacrifice amount to redirect funds via a non-SS pension.
1) your SS is taken before the 40% (or 20%) income tax is calculated, so you won't actually gain anything that way
2) your SS is also taken before your national insurance is taken off (2% on wages taxed at 40%, 12% on wages taxed at 20%) so you'd actually lose that be forgoing SS.

If anything, increase your SS amount well into the 20% band to also claw back the 12% NI if you can (subject to minimum wage/£40k limits of course.)

Aristarcus

Ah, sorry I should have made clear that the money I will be able to add to my pension is from an inheritance, so not from my salary. Thank you for your replies so far

Paul_Herring

Aristarcus wrote: »

Ah, sorry I should have made clear that the money I will be able to add to my pension is from an inheritance, so not from my salary. Thank you for your replies so far

So, what you can do is increase your contribution from salary (subject to the aforementioned limits,) and replace the 'missing' net salary with money from the inheritance...

AnotherJoe

Aristarcus wrote: »

Ah, sorry I should have made clear that the money I will be able to add to my pension is from an inheritance, so not from my salary. Thank you for your replies so far

It doesn't matter. Whether you put more into pension from salary and top up spending from inheritance or not its all counted as coming from your salary and as said, if you've salary sacrificed below high rate you can't do better than that and it would be counter productive to pull out of that as you'd lose the NI benefits