SIPP and higher rate tax relief process

lisyloo

jamei305 said:

One reason to start a SIPP in addition to an employer pension is to avoid putting all your eggs in one basket. Your employer scheme will have trustees and rules (which can be amended at any time) which may limit investment choices and retirement options, but a SIPP is entirely under your control.

A SIPP is under the control of a significant level government rules which can change at any time.
so minimum ages, tax rates, income tax %, NI rules, NI %, LTA etc. are all examples of things that can change.
some (for example LTA) can change during a budget (and did recently during the pandemic)
Other changes such as minimum age tend to give more notice as people need to plan.
one that’s coming along is the minimum age rising from 55-57 and that would apply to SIPPs.
(I remember min age rising from 50-55)
so i’m afraid it’s incorrect to say it’s entirely under your control.

A company scheme MAY have more rules.
it may be less or more expensive.
It May have fewer investment options or it may not.

Your average pension investor does not need thousands of funds to choose from and wouldn’t know what to do if they were offered such a choice.
Many company schemes these days do offer a wide choice and low fees and no exit/transfer fees.
it really depends on what’s on offer.

personally I would look at the rules, investment choice and fees of the company scheme before making a decision.
if it’s equally as good as a SIPP then for admin reasons I’d use the company scheme. Diversity of investments can be achieved by splitting the contributions between different funds.

Dazed_and_C0nfused

i.e. Pay in £10,000, SIPP provider adds 20% = £10,000 + £2,000 = £12,000, tax code changes to 1350L which gives you over the course of a year an additional £2000 in your pay packet.

That is wrong sorry.

If you pay in £10,000 then the pension company adds 25%, making a gross contribution of £12,500.  Tax relief on the gross contribution of £12,500 is £2,500 (20%).

Tax code changes would be very specific to each individual and only apply if HMRC are told about the contribution during (or before) the year, otherwise they would recalculate the tax due and send a refund direct to the taxpayer.

Also, tax relief on pension contributions is only ever given for the tax year the contribution was made in so HMRC never change the tax code of one tax year to allow tax relief relating to a different tax year.

Dazed_and_C0nfused

isayhello said:

lisyloo said:

I’ve checked and it’s the 3 previous tax years in addition to this tax year, so
2018/2019
2019/2020
2020/2021
2021/2022 <- this tax year

so its max £160 gross.

however whilst the annual allowance is 4 years,
the tax relief only applies to the current year 2021/2022
And remember you’ve only paid tax on 55,130
personally I would not contribute more than 55130

The tax relief applies to the tax year the contribution was made in.

Thanks, I always find using an example helps me explain 

So based on above, I could contribute 128k - whatever contributions I've made for this year and the past 3 years, this would be grossed up to 160k by the SIPP provider? and the only higher rate tax relief I would get would be for this year on 55,130-37,700?

Why would you not contribute more than 55,130 if you could by the way? are you not losing out on the BR tax relief?

Unfortunately that post was completely wrong with regard to the tax relief/gross contribution.

What exactly is it that you want to do?