SIPPs and tax relief

robwithsipp

Hi.

I was lucky to earn 110k this year with overtime and bonus. I have only contributed 10k to my sipp this year though (and the same last year). I have 80k in an isa that I am considering using to pay a lump sum into my sipp.
I have heard that I can get tax relief up to 40k, but I might be able to use previous years allowance?
I am confused what tax relief I can get and how to get it.
Can anyone help me?
Thanks for your time.

Dazed_and_confused

You can only get tax relief for the tax year that you make the payment in.

Is your taxable income going to be £110,000?

Is the £20k after basic rate tax relief has been added or before?

robwithsipp

Hi Yes. My taxable income is going to be £110,000
I understand the tax relief for sipps is £40,000 per year, but I can use any that was unused from previous years? So if I only paid 10k into my sipp this year, last year & the year before that, does that mean I have limit of £90.000 this year? (£30,000 X 3) ?
Thanks,

ffacoffipawb

robwithsipp said:

Hi Yes. My taxable income is going to be £110,000
I understand the tax relief for sipps is £40,000 per year, but I can use any that was unused from previous years? So if I only paid 10k into my sipp this year, last year & the year before that, does that mean I have limit of £90.000 this year? (£30,000 X 3) ?
Thanks,

You can go back another tax year if you want. This tax year plus the 3 previous ones.

bowlhead99

Yes, but you would be crazy to blow all of your 80k ISA money (which could make a 100k gross contribution) on making extra contributions this tax year, because each pound contributed only saves tax at the marginal tax rate you'd be paying if you had not made that pound of contribution.

So if you made a huge contribution of that magnitude this year, some of it will only be getting 20% tax relief, whereas next year if you earn another 110k you would have the opportunity to get some more 60% marginal rate tax relief and a lot of 40% tax relief (or if next year's salary and bonus isn't as good, at least a lot of 40% tax relief).

If you use up your cash stash to only get 20% tax relief this year when you could instead keep some of it back to help fund contributions at a much greater 40%+ tax relief next tax year or the year after, you're missing a valuable opportunity.

stevc

If the rumours of the 40% tax rate been lowered to 20% in the next budget are true might be a wise move

SonOf

stevc said:

If the rumours of the 40% tax rate been lowered to 20% in the next budget are true might be a wise move

But if you acted on media published rumours every time the budget is due, you would have lost out financially as they are nearly always wrong.

kinger101

stevc said:

If the rumours of the 40% tax rate been lowered to 20% in the next budget are true might be a wise move

If it was lowered, it would more likely be for FY 2021/22.  And OPs problem is that they'd only be getting 20% relief on a large chunk of it rather than the 40% if they did it in one fell swoop.

robwithsipp

Hi thanks for all the replies.
One thing i should have also have said was that i will also be making 40k of contributions next year.
When i make the lump sum, i believe the sipp provider adds the 20% tax relief onto the contribution and then i claim any further 20% by filling in a tax form? On the tax form, would i need to specify which years contribution(s) i would be using? And i presume hmrc would need some proof of the lump sum payment?
Thanks

Dazed_and_C0nfused

They "add" 25% of your contribution.

There is no "further 20%" and no form to fill in.

A relief at source contribution simply increases the amount of basic rate tax you can pay, which in turn can reduce the amount of higher rate tax payable.  The additional tax savings depends on your personal circumstances and can range from 0% to 40%+.

You can only ever get tax relief for the tax year you make the contribution in.

Will you be filing a Self Assessment return for the tax year you make the contribution in?

robwithsipp

Hi. 
Yes i would be filling in a self assessment. So would i get tax relief on the full 80k lump sum? I presume hmrc would need proof before they give the tax relief.