SIPP - How/when should I claim higher rate tax relief and how will I receive it?

foxfire

I’ve just scraped into the higher rate tax bracket so I’m now eligible for higher rate tax relief on my pension contributions. Wooh (while it lasts)! Except I’m not sure how or when to claim it, or how I'll receive it - specifically for my personal SIPP contributions. I’ve a separate NHS workplace pension which I’m not worried about as full tax relief at the highest rate is automatic.  I’ve never needed to complete a self assessment tax return and I don’t want to start doing this now if I can help it. So my questions are:

1. How should I go about claiming? Bearing in mind that I don’t complete an annual self assessment tax return and nothing has changed in my circumstances except becoming a higher rate tax payer. I understand I can call or write to HMRC? What information will they need?
2. When should I go about claiming? E.g. for contributions I make this financial year (2020/21) presumably I’ll need to wait until next financial year (2021/22) to claim? Is there a cut-off point for claims?
3. How will I receive the tax relief? Will it be paid directly into my SIPP, will I receive a cheque or direct payment into my bank account, or does something else happen, e.g. a change to my tax code so I receive the money through my pay? I’ve read about changes to tax codes but that’s left me confused as I’ll undoubtedly vary my SIPP contributions year-to-year.
4. Is there anything else I need to think about? I’ve read that the figure I’ll need to give HMRC (for them to work out the higher rate tax relief) is my personal contribution PLUS the basic rate tax relief added on via my SIPP provider. Is that right? Anything else? I don’t know what I don’t know...

I’m aware this info might be somewhere on the internet but I can’t seem to find it. I’ve also found it impossible to get through to HMRC to pose these questions. I’ll obviously need to contact them at some point but thought I”d try to educate myself first.

Thanks in advance!

Dazed_and_C0nfused

1.  A letter or phone call to HMRC should be sufficient.  A Self Assessment return is not usually required just because of pension contributions.

2.  The choice is yours.  Claim now and get an adjusted tax code (which is always just an initial attempt at ensuring the correct tax is paid).  Or wait until after the tax year ends and get things finalised in one go.

3.  Through a reduction in tax deducted by your current employment (change to tax code) or direct back to you (refund after the end of the tax year).  It is never paid into your SIPP.

4.  You need to ensure you are crystal clear about what you tell HMRC.  There is often a lot of ambiguity so just make things clear i.e. what the gross payment, inclusive of tax relief at source is and how much you expect to earn this year (taxable pay that will be on your P60 not your "salary").

I’ve just scraped into the higher rate tax bracket

Don't forget there is no automatic extra tax relief for higher rate payers.  The SIPP contribution just increases your basic rate tax band.  Which can mean less 40% tax is paid and you pay more at 20%.  Bit if you only pay higher rate tax on say £200 and contribute £3000 (gross) to your SIPP then the additional tax relief due is only going to be £40.

Finally HMRC never allow pension tax relief in the tax code of a different tax year to the tax year the contribution was paid in.  If you claim for 2020:21 after the end of the tax year HMRC will amend your tax code to include relief for pension contributions but that is only a provisional amount for 2021:22, on the assumption you will be contributing a similar amount in that tax year.  It is not to allow tax relief for 2020:21.

bugbyte_2

This is the letter I fired off about a month ago. No reply as yet - it can take 8 weeks. No idea if it will work.

Pay As You Earn
HM Revenue and Customs

BX9 1AS

Dear Sir / Madam,

 

CLAIM FOR TAX RELIEF AT HIGHER RATE ON SIPP

I have been advised by your online chat facility that I need to write to you to request a claim for higher rate 40% tax relief on my SIPP. My details are:

Name: xxxxxxxxxxxxx

Address: xxxxxxxxxxxxxxxxxxxxxxx

Date of Birth: xxxxxxxxxxxxxxxxxx

National Insurance Number: xxxxxxxxxxxxxxxxxx

Tax Code: xxxxxxxxxxxxx

 

Current Employer: xxxxxxxxxxxxx

Total Gross Pay pa:xxxxxxxxxxxxxxxxxx

Total Teachers Pension Contributions pa: xxxxxxxxxxxxxxxxx

 

No other taxable income.

No contribution to SIPP’s or any other scheme which can claim tax relief in past three years.

 

SIPP Provider: Close Brothers Asset Management

Account Number: xxxxxxxxxxxxxxxxxxxxxxxx

Close Brothers contact details: FREEPOST CBAM ONLINE INVESTOR SUPPORT investorsupport@closebrothers.com

0800 014 2712 

 

Currently this financial year I have put £xxxxxxxx into the above SIPP and Close Brothers have claimed 20% tax relief.

I have little knowledge on how to access the higher rate tax relief - I presume you contact Close Brothers directly on my behalf or provide me with documentation to pass on to my SIPP provider? Could you also advise me on the amount I can add to the SIPP and claim Higher rate tax relief? As I have not contributed to a SIPP or had any tax relief for the last three years I believe I am also eligible for carry forward.

 

Yours faithfully,

Dazed_and_C0nfused

HMRC do not provide financial advice and have no idea what you will earn between now and 5 April 2021 so will not be willing/able to answer the last paragraph.

Neither will they contact your SIPP provider, it is upto you to provide the relevant details.

Which on the whole you send to have done.

Only things that might cause any issues are reference to Total Gross Pay.  You are taxed, and any tax relief due, is based on taxable pay i.e. the pay figure which goes on your P60.

And you could have been slightly clearer about the amount contributed.  I think you mean you paid £xxxxxxxx net and Close Brothers added the 25% uplift to give a gross value of £xxxxxxxx + 25% i.e. £4000 + £1000 = £5000.

Albermarle

bugbyte_2 said:

This is the letter I fired off about a month ago. No reply as yet - it can take 8 weeks. No idea if it will work.

Pay As You Earn
HM Revenue and Customs

BX9 1AS

Dear Sir / Madam,

 

CLAIM FOR TAX RELIEF AT HIGHER RATE ON SIPP

I have been advised by your online chat facility that I need to write to you to request a claim for higher rate 40% tax relief on my SIPP. My details are:

Name: xxxxxxxxxxxxx

Address: xxxxxxxxxxxxxxxxxxxxxxx

Date of Birth: xxxxxxxxxxxxxxxxxx

National Insurance Number: xxxxxxxxxxxxxxxxxx

Tax Code: xxxxxxxxxxxxx

 

Current Employer: xxxxxxxxxxxxx

Total Gross Pay pa:xxxxxxxxxxxxxxxxxx

Total Teachers Pension Contributions pa: xxxxxxxxxxxxxxxxx

 

No other taxable income.

No contribution to SIPP’s or any other scheme which can claim tax relief in past three years.

 

SIPP Provider: Close Brothers Asset Management

Account Number: xxxxxxxxxxxxxxxxxxxxxxxx

Close Brothers contact details: FREEPOST CBAM ONLINE INVESTOR SUPPORT investorsupport@closebrothers.com

0800 014 2712 

 

Currently this financial year I have put £xxxxxxxx into the above SIPP and Close Brothers have claimed 20% tax relief.

I have little knowledge on how to access the higher rate tax relief - I presume you contact Close Brothers directly on my behalf or provide me with documentation to pass on to my SIPP provider? Could you also advise me on the amount I can add to the SIPP and claim Higher rate tax relief? As I have not contributed to a SIPP or had any tax relief for the last three years I believe I am also eligible for carry forward.

 

Yours faithfully,

As you are talking about this tax year , it would probably be better to wait until after the tax year closes.
Then you can inform them of your exact salary and how much you have contributed to your SIPP. Then they will send you a rebate payment for any higher rate tax relief due . They will then adjust your tax code for 21/22 on the assumption you will make the same level of contribution again . The higher tax code will mean a higher monthly net pay .
As said you do not have to involve the SIPP provider at all. 

NottinghamKnight

I've never found SA too 'taxing' it's quite straightforward and if you have simple affairs not too complicated. I try to complete by say July to ensure all info is available, typically takes around 3 weeks for HMRC to process and then a direct payment is made into my bank account, generally refund of higher rate tax and/ or VCT tax relief. 

Albermarle

NottinghamKnight said:

I've never found SA too 'taxing' it's quite straightforward and if you have simple affairs not too complicated. I try to complete by say July to ensure all info is available, typically takes around 3 weeks for HMRC to process and then a direct payment is made into my bank account, generally refund of higher rate tax and/ or VCT tax relief. 

I was always quite happy doing SA ( simple affairs but HRT )but I was told to stop this year . I have to request changes etc through my personal tax account but I preferred SA.

NottinghamKnight

Albermarle said:

NottinghamKnight said:

I've never found SA too 'taxing' it's quite straightforward and if you have simple affairs not too complicated. I try to complete by say July to ensure all info is available, typically takes around 3 weeks for HMRC to process and then a direct payment is made into my bank account, generally refund of higher rate tax and/ or VCT tax relief. 

I was always quite happy doing SA ( simple affairs but HRT )but I was told to stop this year . I have to request changes etc through my personal tax account but I preferred SA.

But are you continuing with the hormone replacement therapy?

foxfire

 Thanks all for your comments which have been incredibly helpful. However the following comments have left me a little confused and I’m now wondering whether I’m even entitled to higher-rate tax relief:

Dazed_and_C0nfused said:

4.  You need to ensure you are crystal clear about what you tell HMRC.  There is often a lot of ambiguity so just make things clear i.e. what the gross payment, inclusive of tax relief at source is and how much you expect to earn this year (taxable pay that will be on your P60 not your "salary").

I’ve just scraped into the higher rate tax bracket

Don't forget there is no automatic extra tax relief for higher rate payers.  The SIPP contribution just increases your basic rate tax band.  Which can mean less 40% tax is paid and you pay more at 20%.  Bit if you only pay higher rate tax on say £200 and contribute £3000 (gross) to your SIPP then the additional tax relief due is only going to be £40.

Dazed_and_C0nfused said:

Only things that might cause any issues are reference to Total Gross Pay.  You are taxed, and any tax relief due, is based on taxable pay i.e. the pay figure which goes on your P60.

I had assumed that because my salary is over the higher rate threshold (just) then that portion of it would be taxed at the higher rate. But I gather that I should instead use my taxable income to work out whether I‘m a higher rate tax payer. Presumably I have to wait for my P60 at the end of the year to find that out and see whether it is above the threshold?

However you said “The SIPP contribution just increases your basic rate tax band”. Does this mean my SIPP contributions reduce my taxable income? So I should take the taxable income figure in my P60 and minus my SIPP contributions (and basic-rate tax relief) for that year and if the resulting figure is over £50k only then I will be eligible for higher-rate tax relief?

So I could end up in a position where if I pay too much into my SIPP my taxable income is brought back into the basic-rate band so I don’t qualify for higher-rate tax relief and in theory could find myself worse off than if I had paid less into my SIPP to keep my taxable income above the higher-rate threshold?

Finally, let’s say I am eligible for higher-rate tax relief - am I right in thinking that even though only some of my taxable income is taxed at 40% I would be entitled to higher-rate tax relief on all of my SIPP contributions?

I may have completely got the wrong end of the stick with all this so would be grateful if someone could enlighten me...

NottinghamKnight

You won't be any worse off but you only get 40% relief on the portion above £50k. It should be fairly simple as the payment into the pension comes from your gross income so the same sum goes into your pension and the tax relief is limited to what you would have paid if you hadn't made the contribution,

SouthCoastBoy

Just a reminder, if you have children and currently claim child benefit and you earn over £50,000 there may be a liability to pay some of the child benefit back. https://www.gov.uk/child-benefit