SIPP investments

sultan123

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

Marcon

The provider claims 20% tax on your behalf and adds it to your pot.

You can claim higher rate relief (to the extent you've actually paid higher rate tax on the amount contributed) through your self assessment tax return, or by contacting HMRC.

All this should be fully explained on your SIPP provider's website.

Dazed_and_C0nfused

sultan123 said:

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

The higher rate tax relief is entirely dependent on your overall tax position.

The gross contribution (£2,000 or £2,500 depending on whether you mean your £2k is the gross or net amount) increases your basic rate band so more tax is charged at 20% and less at 40%.

But there can be other benefits (reduction of HICBC and less tapering of Personal Allowance being a couple) which mean the personal tax saving could be more.

And it can be less if you haven't paid much higher rate tax.

sultan123

Marcon said:

The provider claims 20% tax on your behalf and adds it to your pot.

You can claim higher rate relief (to the extent you've actually paid higher rate tax on the amount contributed) through your self assessment tax return, or by contacting HMRC.

All this should be fully explained on your SIPP provider's website.

But 20% of 2k is £400 but provider says they top up to £500?

Why is then allowed to add £2500 to 37.7k tax band at 20% on tax return?

sultan123

Dazed_and_C0nfused said:

sultan123 said:

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

The higher rate tax relief is entirely dependent on your overall tax position.

The gross contribution (£2,000 or £2,500 depending on whether you mean your £2k is the gross or net amount) increases your basic rate band so more tax is charged at 20% and less at 40%.

But there can be other benefits (reduction of HICBC and less tapering of Personal Allowance being a couple) which mean the personal tax saving could be more.

And it can be less if you haven't paid much higher rate tax.

2k is the amount I am putting into SIPP. Where is £500 addition from as is 20% not £400?

Marcon

sultan123 said:

Marcon said:

The provider claims 20% tax on your behalf and adds it to your pot.

You can claim higher rate relief (to the extent you've actually paid higher rate tax on the amount contributed) through your self assessment tax return, or by contacting HMRC.

All this should be fully explained on your SIPP provider's website.

But 20% of 2k is £400 but provider says they top up to £500?

Why is then allowed to add £2500 to 37.7k tax band at 20% on tax return?

£2,000 is your net contribution, so you need to add 25% to get the tax element i.e. £500, which is 20% of the gross contribution of £2,500 - which answers your second question.

Dazed_and_C0nfused

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

The higher rate tax relief is entirely dependent on your overall tax position.

The gross contribution (£2,000 or £2,500 depending on whether you mean your £2k is the gross or net amount) increases your basic rate band so more tax is charged at 20% and less at 40%.

But there can be other benefits (reduction of HICBC and less tapering of Personal Allowance being a couple) which mean the personal tax saving could be more.

And it can be less if you haven't paid much higher rate tax.

2k is the amount I am putting into SIPP. Where is £500 addition from as is 20% not £400?

Because pension contributions are based on the gross amount.

You pay the net amount (80%) and the pension company adds the other 20%.

So if you pay £2,000 they will add £500.  Making a gross contribution of £2,500.

£2,500 x 20% = £500

sultan123

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

The higher rate tax relief is entirely dependent on your overall tax position.

The gross contribution (£2,000 or £2,500 depending on whether you mean your £2k is the gross or net amount) increases your basic rate band so more tax is charged at 20% and less at 40%.

But there can be other benefits (reduction of HICBC and less tapering of Personal Allowance being a couple) which mean the personal tax saving could be more.

And it can be less if you haven't paid much higher rate tax.

2k is the amount I am putting into SIPP. Where is £500 addition from as is 20% not £400?

Because pension contributions are based on the gross amount.

You pay the net amount (80%) and the pension company adds the other 20%.

So if you pay £2,000 they will add £500.  Making a gross contribution of £2,500.

£2,500 x 20% = £500

Thank you so with that I can add on 20% tax band?

 2,500.00 +  Basic rate band 37,700.00 =   40,200.00 . 

I was under impression the 2.5k would be removed from adjust net income, e.g. adjusted income is 100k -2.5k but how does SIPP actually help without this?

Dazed_and_C0nfused

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

The higher rate tax relief is entirely dependent on your overall tax position.

The gross contribution (£2,000 or £2,500 depending on whether you mean your £2k is the gross or net amount) increases your basic rate band so more tax is charged at 20% and less at 40%.

But there can be other benefits (reduction of HICBC and less tapering of Personal Allowance being a couple) which mean the personal tax saving could be more.

And it can be less if you haven't paid much higher rate tax.

2k is the amount I am putting into SIPP. Where is £500 addition from as is 20% not £400?

Because pension contributions are based on the gross amount.

You pay the net amount (80%) and the pension company adds the other 20%.

So if you pay £2,000 they will add £500.  Making a gross contribution of £2,500.

£2,500 x 20% = £500

Thank you so with that I can add on 20% tax band?

 2,500.00 +  Basic rate band 37,700.00 =   40,200.00 . 

I was under impression the 2.5k would be removed from adjust net income, e.g. adjusted income is 100k -2.5k but how does SIPP actually help without this?

Personal contributions to a SIPP which are eligible for tax relief have several tax advantages.

1.  You receive basic tax relief i.e. you handover £2,000 and get a pension fund of £2,500.

2.  They increase your basic rate band i.e. you handover £2,000 and this becomes a gross contribution of £2,500 then your basic rate band is increased by £2,500

3.  They reduce your adjusted net income.  For example if your total taxable income was £60,000 and you made a gross contribution of £2,500 (and no Gift Aid payments) then your adjusted net income would be £57,500.

sultan123

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

The higher rate tax relief is entirely dependent on your overall tax position.

The gross contribution (£2,000 or £2,500 depending on whether you mean your £2k is the gross or net amount) increases your basic rate band so more tax is charged at 20% and less at 40%.

But there can be other benefits (reduction of HICBC and less tapering of Personal Allowance being a couple) which mean the personal tax saving could be more.

And it can be less if you haven't paid much higher rate tax.

2k is the amount I am putting into SIPP. Where is £500 addition from as is 20% not £400?

Because pension contributions are based on the gross amount.

You pay the net amount (80%) and the pension company adds the other 20%.

So if you pay £2,000 they will add £500.  Making a gross contribution of £2,500.

£2,500 x 20% = £500

Thank you so with that I can add on 20% tax band?

 2,500.00 +  Basic rate band 37,700.00 =   40,200.00 . 

I was under impression the 2.5k would be removed from adjust net income, e.g. adjusted income is 100k -2.5k but how does SIPP actually help without this?

Personal contributions to a SIPP which are eligible for tax relief have several tax advantages.

1.  You receive basic tax relief i.e. you handover £2,000 and get a pension fund of £2,500.

2.  They increase your basic rate band i.e. you handover £2,000 and this becomes a gross contribution of £2,500 then your basic rate band is increased by £2,500

3.  They reduce your adjusted net income.  For example if your total taxable income was £60,000 and you made a gross contribution of £2,500 (and no Gift Aid payments) then your adjusted net income would be £57,500.

Thank you this makes lot of sense.

However if I have made £100,100 income would the £2500 be subtracted from this or is it just a case of just increasing your basic rate tax band?

Dazed_and_C0nfused

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

Dazed_and_C0nfused said:

sultan123 said:

If i Invest 2k into a SIPP how much money should I be getting back. Been told I can claim back 40% on this as higher rate tax payer? But I claim back 20% on tax return.

So what amount should I get back?

The higher rate tax relief is entirely dependent on your overall tax position.

The gross contribution (£2,000 or £2,500 depending on whether you mean your £2k is the gross or net amount) increases your basic rate band so more tax is charged at 20% and less at 40%.

But there can be other benefits (reduction of HICBC and less tapering of Personal Allowance being a couple) which mean the personal tax saving could be more.

And it can be less if you haven't paid much higher rate tax.

2k is the amount I am putting into SIPP. Where is £500 addition from as is 20% not £400?

Because pension contributions are based on the gross amount.

You pay the net amount (80%) and the pension company adds the other 20%.

So if you pay £2,000 they will add £500.  Making a gross contribution of £2,500.

£2,500 x 20% = £500

Thank you so with that I can add on 20% tax band?

 2,500.00 +  Basic rate band 37,700.00 =   40,200.00 . 

I was under impression the 2.5k would be removed from adjust net income, e.g. adjusted income is 100k -2.5k but how does SIPP actually help without this?

Personal contributions to a SIPP which are eligible for tax relief have several tax advantages.

1.  You receive basic tax relief i.e. you handover £2,000 and get a pension fund of £2,500.

2.  They increase your basic rate band i.e. you handover £2,000 and this becomes a gross contribution of £2,500 then your basic rate band is increased by £2,500

3.  They reduce your adjusted net income.  For example if your total taxable income was £60,000 and you made a gross contribution of £2,500 (and no Gift Aid payments) then your adjusted net income would be £57,500.

Thank you this makes lot of sense.

However if I have made £100,100 income would the £2500 be subtracted from this or is it just a case of just increasing your basic rate tax band?

If the £100,100 was taxable income then you would be taxed on the whole £100,100.

But you would pay 20% tax on an extra £2,500 meaning less would be taxed at 40%.

And your adjusted net income would be reduced to £97,600.  So instead of having a tapered Personal Allowance of £12,520 you would get a full Personal Allowance of £12,570.