SIPP share dividend

Albermarle

dantaden said:

Dazed_and_C0nfused said:
You have misunderstood how the tax relief works.  There is no fixed 20%. 

If you contribute £40k gross i.e. a payment of £32k from you and £8k in basic rate tax relief added by the pension company then your basic rate band of £37,700 will be increased by £40,000 to £77,700

Your tax liability wil be calculated using the increased basic rate band so more tax is paid at 20% and less at 40%.  This might work out as saving you £8,000 but it's highly unlikely to be exactly that amount.  And could be as little as £0.20p if you only paid higher rate tax on £1 of your income.

If you only contribute £24k in the first place, i.e. the net payment, then the pension company will add £6k in basic rate tax relief making a gross contribution of £30k.

Any personal tax saving always comes back to you, it never gets added to your pension fund so you will only ever have £30k in your pension fund in the that scenario.

Kindly ignore the prev post as the figures were incorrect

so £50270 is the basic rate cut off.
if my salary is say £100k, and i deposit £32k in SIPP, I can claim 20% tax relief on whole £40k.
if my salary is say £60k, and i deposit £32k in SIPP, I can claim 20% tax relief on £9730.

In effect, I can claim 20% tax relief on (salary-50270) or £40k whichever is lower (and greater than 0). Please confirm

But the main point is the max I can deposit is £32k in SIPP in 1 financial year(not counting any carry fwd)

The figures are right , except you do not claim an extra 20% as such. As previously explained what actually happens is your personal allowance is increased, so you pay less 40% income tax and more at 20%.
The end result is the same in most cases though.

In practice what happens the first year you do it, you get a rebate for that year, and they then adjust your tax code for subsequent years on the assumption you will continue to make the same level of contributions.
But the main point is the max I can deposit is £32k in SIPP in 1 financial year(not counting any carry fwd)
Yes

dantaden

Albermarle said:

The figures are right , except you do not claim an extra 20% as such. As previously explained what actually happens is your personal allowance is increased, so you pay less 40% income tax and more at 20%.
The end result is the same in most cases though.

I understand the logic of personal allowance getting increased. But I thought one has to manually claim 20% extra via filing Self Assessment return

In practice what happens the first year you do it, you get a rebate for that year, and they then adjust your tax code for subsequent years on the assumption you will continue to make the same level of contributions.

Didnt know that HMRC automatically do adjust based on SIPP savings

Dazed_and_C0nfused

dantaden said:

Albermarle said:

The figures are right , except you do not claim an extra 20% as such. As previously explained what actually happens is your personal allowance is increased, so you pay less 40% income tax and more at 20%.
The end result is the same in most cases though.

I understand the logic of personal allowance getting increased. But I thought one has to manually claim 20% extra via filing Self Assessment return

In practice what happens the first year you do it, you get a rebate for that year, and they then adjust your tax code for subsequent years on the assumption you will continue to make the same level of contributions.

Didnt know that HMRC automatically do adjust based on SIPP savings

There is nowhere on a Self Assessment return to claim an extra 20%.  And nowhere on your Self Assessment calculation that you will see an extra 20%.  As it doesn't exist.

If you need to file a return you include relief at source contributions on it.  And your tax calculation will include the increased basic rate band.

Sometimes the tax relief can be much more than 20% as these pension contributions reduce your adjusted net income so can reduce any HICBC payable or increase your Personal Allowance (where adjusted net income is in the £100-£125k range).

They can also mean you are eligible for Marriage Allowance or are entitled to the full £1,000 savings nil rate of tax (rather than £500).

dantaden

@Albermarle@Dazed_and_C0nfused
Got it! This is the first time I will be filing the Self Assessment so I thought there will be any such provision for claiming tax relief (as SIPP guides suggest you can claim).
I understand now what you are saying that tax calculations will include the inc basic rate band automatically based on my inputs.

while on that topic:
1. Should I do SA myself on gosimpletax? What if I make errors? Do HMRC ask to correct or do they put penalty?
2. Any recommendation for budget accountant for doing it?

QrizB

dantaden said:

while on that topic:
1. Should I do SA myself on gosimpletax? What if I make errors? Do HMRC ask to correct or do they put penalty?

I've no idea how complicated your tax affairs are, but I complete my own Self Assessment on the official UK Gov't site. No third-parties required.

Double-check everything, don't claim anything you can't demonstrate you're entitled to, and don't click "submit" until you're certain.

You can save the form at any point and come back to it if you need to check.

The first year or two it's a chore but once you get the hang of it, it's quite straightforward. This year's SA took me less than an hour. (Quite a lot less - from the datestamps on the saved files, about 40 minutes.)