Higher Rate tax and SIPP (Scotland)

edinburgher

I'm looking for some advice as a recent pay increase means that a small proportion of my wages will be taxed at the Higher Rate (about £1,000).

This means that it probably makes sense for me to claim additional tax relief on my SIPP contributions for the year. I'm not sure how this is calculated, although I have checked: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief Does it mean that I can reclaim 21% additional tax relief on up to £1,000 SIPP contributions, 21% tax relief on all SIPP contributions, or something else?

Does the fact that I have contributions paid into the LGPS scheme direct from my wages reduce the amount of HR tax I will pay and therefore, the amount that I can reclaim as tax relief on the SIPP?

Finally, do I need to wait until the end of this tax year and then reclaim the additional tax relief during the next financial year?

Sorry if this stuff is very straightforward, I thought I had the concept straight in my head but I'm having a crisis of confidence now the idea of HR tax is no longer academic!

Qyburn

Hi, I was in the same boat.  In Scotland the pension scheme claims tax back at 20% whatever rate you are actually paying.  So if you're in the 19% band then that's just a bonus. If you're paying more than 20% then that can be claimed back by making a tax return, which is actually no big deal nowadays. Once the tax return is processed they pay that extra tax back to you, and may or may not adjust your tax code to reduce the chance of overpayment next year.

My example, I reckoned I would be into 41% to the tune of around £4.5K. I made a one-off payment into my private pension, paying them £4K which therefore added £5K to the pension fund. After the tax return was processed I got a tax refund, giving back any higher rate tax.

The end result was £5K into the pension for an actual out-of-pocket cost to me of £3K.

I did this right at the end of the tax year, early March. There's no disadvantage, doing it earlier won't stop the HR tax being taken by your payroll, and won't make any difference to the amount of tax you will be repaid. So you can wait and see what the payslips say, so long as you don't miss the end of the tax year.

OldBeanz

edinburgher said:

I'm looking for some advice as a recent pay increase means that a small proportion of my wages will be taxed at the Higher Rate (about £1,000).

This means that it probably makes sense for me to claim additional tax relief on my SIPP contributions for the year. I'm not sure how this is calculated, although I have checked: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief Does it mean that I can reclaim 21% additional tax relief on up to £1,000 SIPP contributions, 21% tax relief on all SIPP contributions, or something else?

Does the fact that I have contributions paid into the LGPS scheme direct from my wages reduce the amount of HR tax I will pay and therefore, the amount that I can reclaim as tax relief on the SIPP?

Finally, do I need to wait until the end of this tax year and then reclaim the additional tax relief during the next financial year?

Sorry if this stuff is very straightforward, I thought I had the concept straight in my head but I'm having a crisis of confidence now the idea of HR tax is no longer academic!

If you are in the LGPS then you might think of taking out an AVC which if taken with your other LGPS benefits can be taken as a tax free lump sum (within large limits). It will also be taken from your salary no need to mess about with the taxman.

edinburgher

@OldBeanz - thank you for the suggestion - but I can't take my benefits until 68 without reduction

Dazed_and_C0nfused

edinburgher said:

I'm looking for some advice as a recent pay increase means that a small proportion of my wages will be taxed at the Higher Rate (about £1,000).

This means that it probably makes sense for me to claim additional tax relief on my SIPP contributions for the year. I'm not sure how this is calculated, although I have checked: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief Does it mean that I can reclaim 21% additional tax relief on up to £1,000 SIPP contributions, 21% tax relief on all SIPP contributions, or something else?

Does the fact that I have contributions paid into the LGPS scheme direct from my wages reduce the amount of HR tax I will pay and therefore, the amount that I can reclaim as tax relief on the SIPP?

Finally, do I need to wait until the end of this tax year and then reclaim the additional tax relief during the next financial year?

Sorry if this stuff is very straightforward, I thought I had the concept straight in my head but I'm having a crisis of confidence now the idea of HR tax is no longer academic!

From what you've posted relief at source contributions will have two benefits (there is a third but not relevant to your situation).

You will get 25% added to the pension fund by the pension company (courtesy of HMRC).

And the gross contribution increases your basic rate tax band.  Meaning less tax is paid at the intermediate or higher rates.

This is based on your taxable income so it's what's on your P60 that counts, which will normally be less than your salary due to your LGPS net pay contributions.

Any personal tax savings comes back to you , it never gets added to your pension fund.

If you don't file Self Assessment returns for any other reason you wouldn't normally need to just because you've paid relief at source pension contributions.

You tell HMRC about the contribution and they will ensure you get any additional relief due.  After the first year they usually include a provisional adjustment (increase) to your current tax code to allow relief during the year and this will be reviewed once the tax year ends.

You only ever get tax relief for the tax year you pay the contribution in so if for example you get a tax code adjustment for 2023:24 that will only ever be allowing relief for 2023:24, it won't be any relief due for 2022:23.  You would get a separate tax calculation showing any relief due for 2022:23.