HMRC Tax Relief and Tax Years

BillyHorner

I have a friend who is a pensioner and whose income is just the state pension (i.e. below the income tax personal allowance). I've previously mentioned to them about making a £2,880 contribution to a SIPP each year and then receiving the additional £720 tax relief from HMRC.

They've now decided this a good idea. Obviously, they need to go through the process of opening a SIPP, making the payment and then waiting several weeks before the tax relief is paid by HMRC. At this point in the tax year I'm presuming that, even though the contribution will be made in this tax year, the HMRC payment won't be paid until the new tax year (i.e. after 6 April).

How would HMRC class this? As a payment relating to the previous tax year (and therefore enabling my friend to do the same again during 2022/23) or as a payment in the 2022/23 tax year (meaning the relief could not be applied again before 2023/24)?

zagfles

It's the year you make the payment into the SIPP, even if the tax relief is paid the next tax year. So could pay £2880 now then £2880 after 6th April.

BillyHorner

zagfles said:

It's the year you make the payment into the SIPP, even if the tax relief is paid the next tax year. So could pay £2880 now then £2880 after 6th April.

Thanks. That's what I assumed would be the case but, as it's not my money, thought I'd better double check with the experts on here!

Dazed_and_C0nfused

Some providers fund the tax relief immediately without waiting for HMRC to cough up so depending on who they choose to open a SIPP with they may find the full £3,600 is their straight away.

But if not it's as zagfles says.

BillyHorner

Dazed_and_C0nfused said:

Some providers fund the tax relief immediately without waiting for HMRC to cough up so depending on who they choose to open a SIPP with they may find the full £3,600 is their straight away.

But if not it's as zagfles says.

Do you happen to know any SIPP providers that adopt that approach? Just thinking that this might allow them to drawdown this tax year (utilising unused personal allowance) as well as future years.

zagfles

BillyHorner said:

Dazed_and_C0nfused said:

Some providers fund the tax relief immediately without waiting for HMRC to cough up so depending on who they choose to open a SIPP with they may find the full £3,600 is their straight away.

But if not it's as zagfles says.

Do you happen to know any SIPP providers that adopt that approach? Just thinking that this might allow them to drawdown this tax year (utilising unused personal allowance) as well as future years.

I think it's generally the platforms which insist on you using an intermediary, so that would likely cost you all the tax relief and more for small amounts!

Albermarle

zagfles said:

BillyHorner said:

Dazed_and_C0nfused said:

Some providers fund the tax relief immediately without waiting for HMRC to cough up so depending on who they choose to open a SIPP with they may find the full £3,600 is their straight away.

But if not it's as zagfles says.

Do you happen to know any SIPP providers that adopt that approach? Just thinking that this might allow them to drawdown this tax year (utilising unused personal allowance) as well as future years.

I think it's generally the platforms which insist on you using an intermediary, so that would likely cost you all the tax relief and more for small amounts!

I think it is mainly the large traditional pension providers , like Aviva, Standard Life, Scottish Widows, Royal London etc that prefund the tax relief. However you are right that most of these will only set up a new pension via an advisor .
Standard Life do not and AFAIK , you can open a new personal pension or SIPP with them directly and they will prefund the tax relief. 
Pensions | Standard Life

OP - Better check with them first and probably they are not the only option.

plumb1_2

BillyHorner said:

Dazed_and_C0nfused said:

Some providers fund the tax relief immediately without waiting for HMRC to cough up so depending on who they choose to open a SIPP with they may find the full £3,600 is their straight away.

But if not it's as zagfles says.

Do you happen to know any SIPP providers that adopt that approach? Just thinking that this might allow them to drawdown this tax year (utilising unused personal allowance) as well as future years.

I opened a sipp with vanguard a few weeks ago, and the tax relief was add immediately.
now do I invest it or leave it as cash.

Albermarle

plumb1_2 said:

BillyHorner said:

Dazed_and_C0nfused said:

Some providers fund the tax relief immediately without waiting for HMRC to cough up so depending on who they choose to open a SIPP with they may find the full £3,600 is their straight away.

But if not it's as zagfles says.

Do you happen to know any SIPP providers that adopt that approach? Just thinking that this might allow them to drawdown this tax year (utilising unused personal allowance) as well as future years.

I opened a sipp with vanguard a few weeks ago, and the tax relief was add immediately.
now do I invest it or leave it as cash.

From the Vanguard website FAQ's

When will tax relief be added to my Contributions?
 We expect to receive tax relief around 6-10 weeks after the date the Contribution was made to your Vanguard Personal Pension. On receipt of this, we shall invest the tax relief in accordance with your original investment instructions.

p00hsticks

Albermarle said:

zagfles said:

BillyHorner said:

Dazed_and_C0nfused said:

Some providers fund the tax relief immediately without waiting for HMRC to cough up so depending on who they choose to open a SIPP with they may find the full £3,600 is their straight away.

But if not it's as zagfles says.

Do you happen to know any SIPP providers that adopt that approach? Just thinking that this might allow them to drawdown this tax year (utilising unused personal allowance) as well as future years.

I think it's generally the platforms which insist on you using an intermediary, so that would likely cost you all the tax relief and more for small amounts!

I think it is mainly the large traditional pension providers , like Aviva, Standard Life, Scottish Widows, Royal London etc that prefund the tax relief. However you are right that most of these will only set up a new pension via an advisor .
Standard Life do not and AFAIK , you can open a new personal pension or SIPP with them directly and they will prefund the tax relief. 
Pensions | Standard Life

OP - Better check with them first and probably they are not the only option.

I think Aviva do the same, and you can open one yourself

https://www.aviva.co.uk/retirement/aviva-pension/

From their T &C

1. Tax Relief on Payments
Your Payments (except any Payment which is a Transfer in or a
Payment from your employer) are made net of basic rate tax and We
will reclaim the basic rate tax relief from HM Revenue & Customs. Your
basic rate tax relief is calculated by Us and will be invested as soon as
it’s possible, according to Your original Investment instruction

Scrudgy

Your friend is below age 75 I take it?  This tax relief stops at that age I think.