SIPP pay in more than allowed?

Barry_Bear

These are the basic facts about SIPP contributions as given by various sources:

You can pay up to 100% of your earnings into your SIPP up to an Annual Allowance of £40,000 gross. If you do not have any earnings you can contribute up to £2,880 and get tax relief of £720 making £3,600 gross. If you have no earnings you can carry forward earnings allowances from prior years.

If you contribute more than your allowance, you will not receive any tax relief, and may also be subject to an annual allowance charge, which will be added to the rest of your taxable income for the tax year. 

There is a separate tax penalty at drawdown if your SIPP is over the limit approx. £1m.

Some of the above rules change once you start drawing down your SIPP pension.

Question. Assuming you have not started drawing down, have no relevant earnings, and no carry forward, and SIPP is a fraction of £1m.

What happens if you pay £40,000 into your SIPP from savings? 

How much is the tax charge? 

Is it a one-off “penalty” charge, or is there an ongoing annual tax charge on the excess contribution thereafter? 

Does the overpayment carry further penalties at drawdown?

zagfles

To answer your specific question - and assuming you're talking gross contributions - you would need to tell your SIPP provider not to claim tax relief on all except £2880 of your net contribution. Your gross contribution of £40k would be a net contribution of £39280 with £720 tax relief claimed by the provider. There is no other tax penalty, as you are within the annual allowance, you are just not entitled to the tax relief on most of your contribution and so you must tell the provider not to claim it. If you accidently go over the tax relief limit you can ask for a refund of the excess contributions, but doesn't sound like that's what you're talking about.

Some providers won't accept contributions on this basis at it causes them admin headaches and is not a normal thing to want to do. A regular poster here michaels was trying to find a provider that would do it recently - have a search for his thread if this is a genuine not hypothetical question.

Note that the consequences of exceeding the annual allowance are totally different. There you need to tell HMRC, usually via a tax return, and there's a tax charge.

Albermarle

You can put as much in your pension as you like with no penalty ( of course you can only get tax relief on it if you have suitable relevant earnings )
The issue with the LTA ( currently £1,073,100) is when you crystallise the pension to take money out . If you do not crystallise the pension at all, then when you reach 75 HMRC do it for you ( a simplified explanation) 

zagfles

Looks like you may have difficultly finding a provider to do what you want to do, as it's not usually a sensible thing to do and most provider wouldn't want the extra admin involved: https://forums.moneysavingexpert.com/discussion/6150871/sipp-provider-who-allows-non-releivable-contributions

Barry_Bear

Thanks for these answers.